Reps & Warranty Insurance Is Helping Private Equity Close Deals as Transactions Face Pressure
Corporate attorney Aaron Slavens, who co-heads the firm's Private Equity practice in Miami, spoke to the Daily Business Review about the use of representations and warranties insurance (RWI) in mergers and acquisitions (M&A) deals. RWI can be a useful tool in deals, especially when the parties involved are under pressure, as they cover breaches of representation for transactions, putting any breaches on the insurer instead of the parties.
Mr. Slavens said that the tool has been surging in popularity throughout the last 10 years as it became more user friendly and people became more comfortable with it.
"It's now the go-to tool in private M&A transactions," he said. "That being said, it's very cyclical because it is tied to the M&A market. Up until last year we were really in a [busy] M&A environment … 2021 was the busiest year of all time for M&A deals. But as we get into 2022 and 2023 the number of M&A deals generally has slowed down."
Mr. Slavens explained that blockbuster M&A years like 2021 caused a surge in use of RWI, even in highly regulated industries like healthcare that did not historically use it. That said, he added, other industries like cannabis and firearms have yet to figure out how to overcome regulatory obstacles to take advantage of RWI.