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Transaction Risk

Representations and Warranties Insurance (R&W), is the fastest growing transaction solution in the private equity insurance arena. Equity Risk Partners is at the forefront of this specialized advisory role with dedicated transaction partners, an enhanced delivery model, and unmatched market access.

R&W effectively facilitates a clean exit for sellers and provides buyers with indemnification coverage, typically provided under a purchase agreement, through a third-party insurer. As a result, R&W can deliver a custom indemnity package for buyers (limits, survival, etc.), reduce deal negotiations, and enhance ROI for both buyer and seller.

Our Transaction Risk practice has effectively streamlined the existing coverage process.  We have reduced lead-time, program costs and overall execution risk, while adding quality representation, best in class coverage and rapid delivery to Private Equity, Corporate M&A and Enterprise clients.  We call it R&W 2.0.

Our unique R&W 2.0 proprietary program offers and solves for the following:

  • Alignment with leading global underwriters capable of virtually unlimited variable coverage options
  • Utilize premier outside M&A counsel, as necessary vs. in-house generalists typical at large brokers
  • Quality minimizes risk – dedicated counsel provides best-in-class and streamlined policy negotiation
  • Simplified compensation structure means no complex supplemental fees (in addition to customary commissions); paid only commissions from insurers
  • Representation by dedicated professionals intimately familiar with the transactional demands of PE and M&A professionals - where time is paramount, quality is relentless, and ROI is a real metric.

Representations and Warranties Insurance

R&W insurance facilitates transactions by transferring some or all of a Seller’s indemnification obligations for breaches of reps and warranties to a third-party insurer, typically benefiting both Buyer and Seller.  Buyers often obtain a policy to provide a competitive indemnity package to a Seller in an auction.  A Seller may obtain a policy to backstop their own indemnity exposure to provide greater certainty of proceeds post-close.

Benefits include:

  • Increased speed of reps and warranties and indemnity negotiations
  • Extended survival periods, limits and terms of indemnification
  • Reduced indemnity and/or escrow (more competitive indemnity package) 
  • A-rated, third-party payee

General Pricing:

  • 2% - 4% of the policy limit
For our video tutorials of R&W, please visit our Knowledge Center

Tax Indemnity & Tax Credit Insurance

Tax Indemnity insurance provides recourse for a Company at risk of an inadvertent error in the tax treatment of a historical, pending or future transaction (also known by some as Tax Opinion insurance).   As of result of the current hurdles associated with obtaining a Private Letter Ruling (PLR) from the IRS, Companies are utilizing a Tax Indemnity insurance policy in place of a PLR to protect themselves against a future adverse ruling by IRS.

Tax Equity Credit insurance provides for recourse against recapture of credits should the insured unexpectedly not meet necessary qualifications, ‘placed in service dates’, or other investment criteria for such tax credits.  With the issuance of Revenue Procedure 2014-12,  these instruments have been increasingly accepted over the past 12 months to cover tax equity projects for low-income housing tax credits, historic rehabilitation tax credits, and renewable energy credits such as production tax credits and investment tax credits.

Benefits include:

  • Covers tax, interest, penalties, gross-ups and contest costs 
  • Covers U.S., state, local and/or foreign tax authorities (future protection against ‘change in law’ is often covered)
  • Increased transaction speed by bridging the gap between a buyer and seller
  • Can be done without tax opinion

General Pricing:

  • 2% - 5% of the policy limit

Contingent Liability, Litigation Buy-out and Other Transaction Risk

Contingent Liability / Litigation Buyout / Other Transaction Risk Description: Other insurance solutions are available to handle specific exposures known or identified within the context of a transaction.  Generally, the facts and circumstances of these exposures are mostly agreed upon but some uncertainty as it relates to timing and ultimate value still exists.  These policies are put in place to allow both a Buyer and Seller to ‘box in’ such a known issue at an agreeable valuation with a premium (paid to insurers) and insure coverage for a catastrophic loss exceeding such amount.

Benefits include:

  • Bridge the gap between a buyer and seller
  • Can provide comfort to passive investors
  • Eliminate catastrophic loss

General Pricing: 

6% - 10% of the policy limit