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M&A’s Rebound Year
by Virtus on February 5 2024
Stay Competitive as Deal Flow Heats Up
There’s a renewed enthusiasm for deal activity as economic and market indicators point to a recovery year for M&A. Experts predict private equity deal volumes are likely to rebound 13 percent and corporate M&A is anticipated to return to pre-pandemic levels of activity.
In tandem with the acceleration of deal flows and negotiations, Reps and Warranties Insurance (RWI) is also having its moment. A decade ago, RWI was an elusive gem reserved for giants and unique circumstances. Today, RWI is now the crown jewel of M&A deals--from the largest from multimillion-dollar transactions down to the smallest markets (<$50m TEV), which wasn’t feasible even a few years back.
Prepare for What’s Ahead
The scene is set for 2024, where deal flows are not just accelerating but threatening to break free from market predictions, which can tip the negotiating scales against buyers of RWI– a déjà vu from Q4 2021 when insurers had to pick only the “cream of the crop” due to capacity constraints.
Private Equity investors typically stand at the intersection of risk and reward and RWI can be an additional layer of protection; after all, they’re typically the ones writing the check. This is where an insurance broker adds significant value, serving as an advocate and consultant to ensure the deal is outstanding in the eyes of the insurer to secure the best pricing and terms.
The Blockbusters from the Mediocre: How to Make a Standout Deal
This is where the details matter; and our private capital insurance experts share their 10 tips to turn an RWI submission into an M&A masterpiece.
- Quality of Due Diligence
Buyers who unravel the intricacies of due diligence, investing time and resources to comprehend and conquer risks, take center stage. It's not just about understanding; it's about mitigating. Showcasing tangible steps to mitigate risks reduces the perceived exposure, increasing the likelihood of favorable terms. - Clear Communication
Effective communication with the insurance underwriter is crucial. Buyers who articulate transaction details with finesse, address concerns promptly, and provide additional information when needed are more likely to be viewed positively. - Financial Strength of the Buyer
Insurance carriers consider financially strong buyers as more reliable and less risky, increasing the likelihood of more favorable pricing and terms. - Deal Structure and Terms
Buyers partnering with experienced advisors to optimize the RWI policy structure and negotiate favorable terms can influence attractiveness and give a competitive advantage. - Positive Industry Trends
Deals in industries with positive trends or growth are the darlings of insurers. Buyers should be ready to shine the spotlight on the industry's positive outlook and align the transaction with broader market dynamics. - Collateral and Security Measures
Offering collateral and implementing security measures fortify the attractiveness of the deal. Buyers willing to provide extra assurances may be able to negotiate more favorable insurance terms. - Collaborative Approach
A collaborative and cooperative approach with the insurance underwriter builds a positive relationship. Buyers who are responsive, open to discussions and able to address concerns collaboratively may receive more favorable consideration. - Engage Early
Even before the diligence workstreams are in full motion, engaging early puts the deal on the radar of insurers. It’s not just about getting noticed; it’s about giving insurers time to better understand the intricacies, resulting in tailored insurance solutions that match the specific deal dynamics. - Leverage Past Success
For those with a track record of success, share it. Past achievements with RWI are a powerful tool to leverage. Highlighting these successful transactions and claims experiences instills greater confidence in the insurers. - Experienced Advisors
Work with experienced insurance brokers and legal advisors who specialize in RWI. More than mere time-savers, they infuse confidence into the workstream and elevate best practices like the ones mentioned above to make the deal standout from the rest.