Mergers & Acquisitions

M&A Talk Podcast

M&A Talk is the #1 podcast on mergers & acquisitions. At M&A Talk we bring you exclusive interviews with experts in business sales, valuations, mergers and acquisitions, and more. We talk to the most experienced professionals in the industry to uncover their secrets.

Do You Need Reps & Warranties Insurance When Selling a Business?

Do You Need Reps & Warranties Insurance When Selling a Business?

T.J. Noonan

Reps & Warranties Insurance

We are joined in this episode by insurance expert TJ Noonan, Managing Director of the M&A Transaction Solutions Practice with Hylant. We talk about what reps & warranties insurance is, the role it plays in a transaction from due diligence through closing, what the seller should know about R&W insurance, how involved an insurance company gets in a transaction, benchmarks in the industry, the future of R&W insurance, and much more. No two transactions are the same, but this discussion will give you insights into some of the common areas around insurance for your business.

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Guest Profile

T.J. Noonan is Managing Director of the M&A Transaction Solutions Practice with Hylant. T.J. has several areas of expertise, including account management and M&A experience with a Fortune 50 company, where he served in a variety of roles before joining Hylant. At Hylant, T.J. is part of the M&A and Transaction Solutions (MATS) team focusing on reducing valuation uncertainty and optimizing return on capital during a transaction. The MATS team advises clients by developing customized, value-added solutions to ensure investments are safe while maximizing financial returns.


  • Insurance policies only continue in a stock transaction.
  • No two transactions are the same – most insurance policies are very flexible.
  • Many private equity firms require reps & warranty insurance (R&W insurance).
  • 75% of all PE transactions have R&W insurance.
  • 50%-60% of all mid-market M&A transactions have R&W insurance.
  • The insurance company often relies on the buyer’s due diligence.
  • The standard coverage amount is 10% of the purchase price.
  • The seller and buyer usually split the premium.
  • The typical minimum transaction size is $30 million, which equals $3 million in coverage, although some insurers will go as low as $10 million.
  • 20% of R&W insurance policies see a claim.
  • Claims are paid out based on the transaction multiple.
  • Claims are paid out to the insurance policy holder, which is almost always the buyer.
  • R&W insurance DOES cover fraud.
  • Most common claims by the numbers:
    • Financial statement accuracy – 20%
    • Tax liabilities (income, payroll, etc.) – 18%
    • Compliance with laws (e.g., minimum wage, etc.) – 15%
    • Material contracts (e.g., all customer contracts are in good standing) – 13%
    • Miscellaneous – IP, litigation, operations, environmental, fundamental, etc. – 34%
  • There is no subrogation for R&W insurance, with the exception of fraud.
  • R&W insurance costs the seller approximately 2% of the transaction size.
  • The buyer and seller’s legal teams are much more comfortable expediting the negotiations of the reps and warranties if R&W insurance is in place.
  • Most insurance companies can perform due diligence in seven days.
  • There are currently approximately 20 to 25 R&W insurance carriers.
  • Not offering R&W insurance should constitute malpractice, according to one national law firm.

Topics Covered

  • What types of insurance are relevant to M&A transactions? [3:30]
  • Can you insure against tax-related risks? [4:35]
  • Why can’t a buyer rely on the seller’s existing insurance policies? [5:50]
  • Does the seller need to continue the policies after the closing? [7:00]
  • Change of control clauses [8:00]
  • Does insurance cover successor liability-related risks? [9:10]
  • How efficient is the market for pricing M&A-related risks? [11:50]
  • Overview of reps & warranties insurance [13:10]
  • To what extent does the insurance company need to perform due diligence? [16:40]
  • How does the insurance company become involved in deciding the basket (minimum or deductible), cap (maximum), knowledge qualifiers, and other terms in the purchase agreement? [18:10]
  • Who pays the premium? [21:55]
  • Does the cost increase on a pro-rata basis for smaller transactions? [23:30]
  • How long are most R&W policies? [26:00]
  • What are the most common claims? [28:00]
  • How does the definition of knowledge affect coverage? [35:20]
  • What should the seller know about R&W insurance? [40:00]
  • How do you quantify the amount of the claim? [42:45]
  • How involved is the insurance company in performing due diligence and negotiating the purchase agreement? [44:40]
  • Are carriers industry specific? [47:10]
  • What other types of M&A insurance do insurance companies offer? [49:00]
  • What is a risk profile assessment? [54:30]
  • Insurance benchmarks by industry [57:45]
  • The future of R&W insurance [1:04:00]

Learn More



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