Representation and Warranty Insurance

Issue
Merger and acquisition transactions generally require the seller to indemnify the buyer for breaches of the representations and warranties that are made in the purchase and sale agreement. Depending on the parties involved and the nature of the representations and warranties, the seller may be required to escrow a material percentage of the indemnification requirement. This requires the seller to maintain substantial illiquid capital following an exit. If the seller is a private equity investor, it may limit their ability to wind down partnerships formed for investment purposes, and may further limit their ability to return funds to investors.

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