The Reps & Warranties Insurance (RWI) market has been a hive of activity in recent times, with notable shifts and trends impacting the landscape.
As Horton’s M&A Practice closely observes these developments, here’s a comprehensive overview of what’s been unfolding and how it may impact your M&A strategies.
Fluctuating Rates
Rates in the RWI market continue to witness a downward trend, offering more favorable terms. Currently, most offerings range between 2.25% to 3.5% of the purchased limit.
Evolving Retentions
Retentions have come down, typically ranging between 0.65% and 0.9% of enterprise value. This reduction from the traditional 1% further demonstrates the softness of the market.
Decreasing Minimum Premiums
Minimum premiums in the RWI market are on a downward trajectory, with some providers even eliminating them altogether. However, underwriting fees remain a requirement, varying between $25K to $40K, even for smaller transactions.
Diverse Transaction Sizes
Interest in RWI coverage extends beyond large-scale deals, with a notable uptick in smaller transactions. As minimum premiums decrease, there’s a growing opportunity to leverage RWI to enhance offers, providing sellers with no-cost coverage and eliminating the need for escrow arrangements.
Expanding Scope of Transactions
The RWI market is witnessing increased interest across various transaction types, from carveouts lacking audited financials to complex portfolio or platform underwriting processes. This newfound flexibility opens doors to a wider range of M&A opportunities.
Favorable Terms and Flexibility
Exclusions listed in non-binding indication letters are becoming increasingly rare, with most underwriters maintaining this stance throughout the underwriting process, barring known or unresolved issues. This trend underscores the market’s willingness to offer comprehensive coverage with minimal exclusions.
Leveraging RWI in M&A Strategies
A notable shift is observed in the integration of RWI into the Letter of Intent (LOI) process by buyers. Offering to cover the cost of the policy and including “No Seller Indemnity” clauses serves as a compelling incentive for sellers, streamlining negotiations and mitigating risks.
How to Capitalize on RWI
At Horton, we recognize the pivotal role of RWI in modern M&A transactions. Our experienced team actively engages with clients to explore innovative strategies, leveraging RWI to enhance offerings and mitigate risks. Whether you’re a seasoned acquirer or a first-time buyer, RWI can be a valuable tool in your M&A toolkit.
As the RWI market continues to evolve, staying abreast of emerging trends and leveraging the latest insights is paramount for success in M&A transactions. Horton’s M&A Practice remains committed to guiding clients through the complexities of RWI, empowering them to make informed decisions and achieve their strategic objectives.
Additional details can be found this report from AIG, which you can read here. For a personalized consultation on how RWI can enhance your M&A strategies and mitigate risks, feel free to reach out to our team at Horton. Let’s navigate the dynamic landscape of RWI together and unlock new opportunities for growth and success.
Mike Richmond
Mike is a Senior Vice President at The Horton Group. As a trusted business advisor, he is responsible for analyzing every detail of a client’s business, determining every exposure and providing risk management programs to insulate his clients’ businesses from liability. Mik is also an attorney who studied law at night while working as an insurance consultant. His legal education gives him an intimate understanding of the liabilities businesses face, as well as the many ways those liabilities can affect businesses.
Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.
