With an analysis of 588 private-target acquisitions ($108 billion) that closed between 2015 and 2017, this study is powered by MarketStandard™—the most comprehensive source of data on “what’s market” in private-target M&A. Key insights into the Buy-Side Representations and Warranties Insurance Deal Terms Study include:

 

  • Effect on Deal Characteristics: Buy-Side RWI is more prevalent on deals for which the purchase price exceeds $50M, reflecting RWI insurers’ historical preference to focus on deals at or above that size, but increased competition in the RWI space is resulting in smaller deals now qualifying for RWI.
  • Effect on Financial Terms: Over 90% of deals with Buy-Side RWI contain a purchase price adjustment mechanism, and 82% of deals with Buy-Side RWI use a separate escrow to secure the purchase price adjustment.
  • Effect on Setoffs: While 84% of deals with earnouts that have no Buy-Side RWI allow buyers to offset indemnity claims against future earnouts, only 61% of deals with Buy-Side RWI allow it, and 33% of deals with Buy-Side RWI expressly prohibit such offsets. 
One significant correlation in this study is between the presence of Representations and Warranties Insurance and Buyer Power Ratio™, which is one of the five filters in SRS Acquiom MarketStandard. The Buyer Power Ratio, which we developed in conjunction with the American Bar Association Mergers & Acquisitions Committee, has two components:
  1. The market capitalization (market cap) of the buyer; and
  2. The purchase price paid by the buyer in the acquisition (including escrowed amounts, but not including potential earnouts).

You may also register for MarketStandard here to access our online tool that allows you to apply filters to review data from transactions that look most like the one you are negotiating. MarketStandard is supported by the most comprehensive, continuously updated database of private-target deal terms available.

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