It has become common for representation and warranty insurance (RWI) to be used in merger and acquisition (M&A) transactions, and the practice appears to now be gaining momentum in the secondary market. While RWI can provide benefits to sellers and buyers in secondary transactions, it may also introduce additional complexity and increased upfront costs. The evolution, use and potential future of RWI in secondary market transactions was recently discussed at the Kirkland Liquidity Solutions Academy. Moderated by Kirkland & Ellis partners Michael D. Belsley and Jessica H. Sicsu, the panel featured Matthew Heinz, senior managing director of Aon Transaction Solutions; Dale Addeo, managing director of Evercore; and Anna Rozin, vice president of M&A insurance at AIG. This first article in a two-part series discusses the history of RWI in transactions; the economic benefits it can offer to both buyers and sellers; and an overview of the timing and process for putting RWI in place. The second article
will detail some of the key terms for RWI policies, as well as unique considerations when it is used in secondary restructurings led by general partners. For additional commentary from Kirkland & Ellis on the secondary market, see “Current Trends in the PE Secondary Market and Key Differences Between Europe and the U.S.
” (Oct. 22, 2019).