REPRESENTATIONS & WARRANTIES INSURANCE
William B. Rowland
+1.404.581.8961
IMPROVING DEAL OUTCOMESTHROUGH STRATEGIC RISK MANAGEMENT
Escrow /
Indemnity Cap Premium
Escrow
R&W Policy
R&W: TWO-STEP PROCESS MAY TAKE 2-3 WEEKS, DEPENDING
Step 1
• Engage Broker
• Negotiate NDAs, Confidentiality
Agreements
• Provide Transaction Document,
Audited Financials, CIM
• Negotiate Non-Binding
Indication Letters (“NBILs” or
Quotes)
Step 2
• Choose Insurers
(primary and excess, if necessary)
• Provide Access to Data Room,
Diligence Materials
• Hold an Underwriting Call
(Insurers, Buyer, Buyer’s Advisors)
• Negotiate R&W Policy
• Bind at Signing or Closing
THE BASICS OF BUY-SIDE R&W INSURANCE
• Coverage: Losses resulting from Breaches of Seller’s Representations,
Pre-closing Taxes, Third Party Claims (defense costs / damages)
• Policy Limits (Cap): 10% to 15% Enterprise Value (mirrors typical escrow
holdback)
• Retention (Deductible): 1% Enterprise Value (below 1% “fairly routinely”)
• Policy Period (Survival): 3 Years for General Reps; 6 Years
Fundamentals and Tax (including Pre-Closing Tax Indemnity)
• Costs: Premium, Underwriting Fee, Broker Commission, Taxes/Fees
Generally 3% to 4% but can be lower (2% to 3% for $50M+ limits) or
higher (6% or more for $5M or lower limits)
R&W: ADVANTAGES FOR BUYERS
• Broader coverage for reps than available in negotiation
(e.g., extended survival periods, broader definition of damages)
• Make bid more attractive, contract easier to negotiate with sellers
• Ease collection concerns associated with sellers’ credit-worthiness or
other circumstances (i.e., status as a fund, cross-border deals)
• Greater variety of strategic avenues for settling claims with sellers,
particularly if sellers remain involved in the business post-closing
• In contrast to an insurer’s duty of good faith and fair dealing, such
obligations are not as well defined in the typical business contract
R&W ADVANTAGES FOR SELLERS
• Expedite sale process
• Exit deal with increased funds
• Attract better offers
• Reduce contingent liabilities
• Protect passive sellers
• Reduce or eliminate post-closing indemnity obligations
EXPONENTIAL GROWTH CONTINUES THROUGH 2018
• Larger deals (over $1B) are not uncommon
• More strategic corporate buyers (i.e., not just Private Equity)
• More than 25 R&W insurance companies with over $1B capacity (i.e., limits)
• Increased willingness to underwrite challenging areas including:
➢Environmental
➢Health Care / Life Sciences
➢Cyber / Intellectual Property
➢Employment / Wage and Hour / FLSA
Sensitivity: Confidential
STANDARD AND DEAL-SPECIFIC R&W EXCLUSIONS
• Breaches actually known at
signing (i.e., discovered during
diligence)
• Fraudulent misrepresentations
by buyer (seller fraud is
covered)
• Purchase Price Adjustments
• Covenants
• NOLs or tax attributes
• Pension underfunding or
withdrawal liability
• Interim Breaches
• Civil or criminal fines or
penalties
• Asbestos/PCBs / Environmental
• Claims in violation of sanctions,
FCPA, etc.
• Employment / FLSA / Wage and
hour
• Cyber / Intellectual Property
• Product Liability / Warranty /
Recall
R&W: STRATEGIC QUESTIONS
• Who will be the Insured under the R&W Policy (i.e., Buy-Side or Sell-
Side Policy)?
• Who will bear the risk of no R&W coverage?
• Who will pursue claims against R&W Policy?
• Will R&W Retention be eroded by uncovered losses?
• Will escrow, indemnification or other insurance policy be available?
• How will attorney-client privileged information be protected?
M&A-RELATED INSURANCE PRODUCTS
2013 2017
Policies Bound 54 493
Total Limits 2.1b 16.5b
Premiums 57m 486.1m
2013 2017
Policies Bound 40 434
Total Limits 1.4b 13.4b
Premiums 33.2m 361.3m
All M&A-related Insurance Products R&W (North America)
Source: Aon (2018)
Includes R&W, Tax, Litigation Buyout, Contingent Risk, CFIUS/Reverse Break
Fees, Antitrust/Reverse Break Fees, Health Care, Energy, Successor Liability,
Fraudulent Conveyance, FCPA, Cash Collateral Confirmation (UK)
R&W CLAIMS: STATISTICS
Aon has been notified of 119 R&W claims on policies placed beginning in 2013
2013 2014 2015 2016 2017
21% 17% 16% 15% 4%
R&W Policies
Buy-side Sell-side
• 104 Claims • 34% policies
• 10% policies • 15 Claims
Source: Aon (2018)
R&W DISTRIBUTION OF AVERAGE CLAIM NOTICE FROM POLICY INCEPTION DATE
27% 24% 24% 17% 8%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0-6 months 6-12 months 12-18 months 18-24 months 24 months+
Source: AIG (2017)
R&W CLAIMS: TRENDS
Timing of Claims: Closing to Claim
Notice
▪ Median:
▪ Mean:
▪ Range:
10 months
9.7 months
3 days to 29 months
▪ Interim claims: 5
0-6
mont
hs
6-12
mont
hs
12-18
months
18-24
months
+24
months
2928
22
19
16 16
13
8
Types of Breaches
Source: Aon (2018)
R&W REPORTED CLAIMS BY BREACH TYPE
20% 15% 14% 14% 8% 8% 7% 5% 5% 5%
0% 10% 90% 100%40% 50% 60%
Compliance with Laws
Intellectual Property
Environmental
70% 80%
Material Contracts
Employee Related
Litigation
20% 30%
Financial Statements
Tax
Fundamentals
Operations RelatedSource: AIG (2017)
R&W FINANCIAL STATEMENT BREACH TYPE
26%
25%19%
17%
13% Accounting rules breach
Misstatement of accounts receivable/payable
Undisclosed liabilities
Misstatement of Inventory
Overstatement of cash holdings or profit
Source: AIG (2017)
Sensitivity: Confidential
Bill Rowland represents significant companies in M&A and other
transactional matters, crafting pragmatic solutions to his client's complex
business and legal issues. Clients have turned to Bill for more than 30
years to achieve their transactional goals. His practice focuses on
domestic and cross-border mergers and acquisitions, divestitures, joint
ventures, corporate governance, and takeovers. He is the coordinator of
the Atlanta Office transactional practices.
Bill represents both public and private companies across an array of
industries, including chemicals, energy, manufacturing, media, telecom,
and technology. Representative transactions include Southern
Company's acquisition of AGL Resources ($12 billion) and divestiture to
NextEra Energy ($6.5 billion), Eastman Chemical's acquisitions of
Solutia ($4.8 billion) and Taminco ($2.8 billion), Cumulus Media's
acquisitions of Citadel Broadcasting ($2.4 billion) and Susquehanna
Radio ($1.5 billion), J.M. Huber's divestiture to Evonik ($630 million),
and Birch Communications' merger with Fusion Telecommunications
($600 million). Bill has led substantial matters for a number of other
clients including Barco NV, Georgia-Pacific, Koch Industries, and Sanofi.
Bill is the former chair of the Business Law Section of the State Bar of
Georgia. He is active in the community and currently serves on the
Economic Development Committee of the Metro Atlanta Chamber of
Commerce. He formerly served on the board of directors of the Alliance
Theatre, the Georgia Council for International Visitors, and the Swedish-
American Chamber of Commerce. He is a member of the Leadership
Atlanta Class of 2009. Bill's work has been recognized in various legal
surveys including The Best Lawyers in America and Chambers USA.
EXPERIENCE HIGHLIGHTS
The Southern Company acquires AGL Resources for $12 billion
Koch Equity Development invests over $2 billion in Infor
Eastman Chemical acquires Solutia for $4.8 billion
HONORS & DISTINCTIONS
BTI Consulting Group "Client Service All-Stars" (2013)
The Best Lawyers in America — mergers & acquisitions (2018)
Chambers USA — leaders in their field, corporate/M&A (2018)
The Legal 500 US (2014)
Georgia Super Lawyers
PLC Which lawyer? — recommended lawyer, corporate/M&A
EDUCATION
University of Wisconsin (J.D. cum laude 1986; Order of the Coif; B.B.A. 1983)
BAR ADMISSIONS
Georgia
WILLIAM B. ROWLAND (BILL)PARTNER
M&A
Joint Ventures & Strategic Alliances Technology
Technology M&A
Atlanta
(T) +1.404.581.8961
F) +1.404.581.8330
Sensitivity: Confidential