The Impact of Buy-Side RWI on Buyer Indemnification Efforts

The Challenges Sellers Face and Strategies for Success

The last few years have seen a dramatic increase in the number of M&A transactions featuring Buy-Side RWI in the United States. Sellers have used the leverage afforded to them in a seller-friendly market to negotiate smaller escrow funds and push buyers to purchase Buy-Side RWI as a principle way of securing recovery for losses resulting from breaches of sellers’ representations and warranties in purchase agreements. Though Buy-Side RWI allows sellers to collect a larger percentage of deal proceeds at closing and risk less in escrow, the widespread use of the product in recent years has brought with it certain unexpected challenges for selling shareholders when buyers seek recovery from the escrowed funds for matters also insured by an RWI policy.

This article examines some of the challenges present in deals where Buy-Side RWI is employed and offers a number of strategies deal parties can use to address these challenges.