Warranty and Indemnity (W&I) Insurance

A specialist insurance policy used in M&A transactions that covers losses arising from breaches of the seller's warranties and representations in the sale and purchase agreement. W&I insurance shifts the risk of warranty claims from the seller to an insurer, enabling cleaner exits for sellers and reducing the need for escrow holdbacks.

A third-party account established at closing of an M&A transaction to hold a portion of the purchase price (typically 5-15%) for a specified period, providing the buyer with security against potential warranty claims, indemnity obligations, or purchase price adjustments. The escrowed funds are released to the seller upon expiry of the escrow period or resolution of any outstanding claims.

Statements of fact and assurances made by the seller (and sometimes the buyer) in an M&A sale and purchase agreement regarding the condition, operations, finances, and legal standing of the target business. Warranties cover areas including financial statements, material contracts, intellectual property ownership, litigation, tax compliance, and employee matters.

A private equity transaction in which one PE fund sells a portfolio company to another PE fund, rather than to a strategic buyer or through an IPO. Secondary buyouts have become the most common PE exit route, accounting for over 50% of European PE exits in recent years.

A comprehensive due diligence exercise commissioned and paid for by the seller of a business prior to a sale process, with the resulting reports made available to prospective buyers. VDD typically covers financial, tax, commercial, and legal matters and is prepared by independent professional advisors.

The configuration of financial, legal, and operational terms governing a merger, acquisition, or investment transaction. Deal structure encompasses the mix of cash and equity consideration, earn-out arrangements, escrow provisions, representations and warranties, indemnification mechanisms, and governance rights.

A violation of a financial or operational condition specified in a loan agreement, which may trigger a range of lender remedies including increased interest rates, acceleration of repayment, additional collateral requirements, or declaration of an event of default. Financial covenant breaches most commonly involve failure to maintain minimum debt service coverage ratios, maximum leverage ratios, or minimum net worth requirements.

A self-executing program stored on a blockchain that automatically enforces the terms of an agreement when predetermined conditions are met, without requiring intermediaries. Smart contracts enable trustless transactions, automated escrow, decentralised finance protocols, and programmable business logic.