In recent years, deal volume and purchase prices have hit historic highs. To alleviate risk to buyers, both buyers and sellers have increasingly looked to insurance as a method of bridging the gap— allocating more risk to the insurance company as part of the sale of a business.
Representations and warranties is the most frequently used type of insurance in these circumstances. R&W insurance provides protection to the buyer against losses it could suffer from inaccuracies or breaches of the representations and warranties provided in a purchase agreement by the selling company and shareholders. If properly structured, the seller will have a greater percentage of the sales price guaranteed, while the buyer can turn to the insurance company to recover losses if the seller breaches the contract.