James S. Carter and Justin A. Chiarodo
Representations and Warranties (“R&W”) insurance has burst into the market in the last five years and now plays a key role in mergers and acquisitions (“M&A”) involving government contractors. Both private equity and strategic buyers use R&W insurance to improve their competitive position, and sellers benefit by avoiding escrows and holdbacks. In short, it can help get deals done. R&W insurance continues to evolve, and government contracts deals present unique challenges.
Below we discuss the basic aspects of this important insurance product and provide 10 tips for potential R&W policyholders to consider when evaluating policies. Continue reading “Helping Get Deals Done: 10 Tips to Assess Rep and Warranty Insurance Language in Government Services M&A Transactions”
Kevin R. Doherty
Earlier this month, the New Jersey Appellate Division upheld a decision allowing Cooper Industries LLC (“Cooper”) access to insurance policies received through a series of mergers and acquisitions (“M&As”), even though the transfer of assets language in the relevant bill of sale did not specifically reference the transfer of insurance rights. Cooper was thus afforded liability coverage for a U.S. Environmental Protection Agency (“EPA”) action seeking substantial cleanup costs.
Cooper’s predecessor, McGraw-Edison Co. (“McGraw”), previously obtained a variety of liability insurance policies from various insurers throughout the 1970s and ‘80s. At issue in the case was whether McGraw’s right to these policies was properly transferred, through a series of corporate transactions, such that Cooper could now access them for the EPA claim. The lower court found the relevant bill of sale language to be ambiguous and relied on deposition testimony from employees to find, among other things, that all assets and liabilities were meant to be transferred, including insurance rights. Insurers appealed. Continue reading “Appellate Division Finds Coverage for EPA Claim through Company’s Historic Mergers and Acquisitions, Even Though the Bill of Sale Did Not Specifically Reference the Transfer of Insurance Rights”
Lisa M. Campisi
Numerous commentators have written as to how Representations and Warranty Insurance (“Rep & Warranty Insurance”) can be a valuable tool in getting deals closed. Indeed, numerous difficult deals that may have otherwise died, or at least gone sideways, have been able to close thanks to the prudent use of Rep & Warranty Insurance.
As noted at a recent Blank Rome CLE presentation to several hundred in-house and outside counsel, like any other insurance policy the quality of a Rep & Warranty Insurance policy will depend on essentially one thing: the policy language. Accordingly, this post does not focus on whether or how to obtain such insurance, but on some of the key terms to analyze and seek to negotiate or enhance if you do. Continue reading “Buying Rep & Warranty Insurance? Be Sure to Watch Your Language!”
Justin F. Lavella
Bolstered by the strong United States dollar and cheap energy costs, the current wave of corporate takeovers and mergers shows no sign of abating. In fact, according to last month’s bi-annual report on corporate dealmaking from Ernst & Young, 56 percent of responding companies stated that they intend to make acquisitions in the coming year, which was a significant increase from the 31 percent reported in April 2014. Ernst & Young also noted that the number of deals in the pipeline is up 19 percent from this time last year.
As this expanding inventory of corporate transactions moves toward completion, an increasing number are likely to involve the purchase of “representations and warranties” insurance. While R&W insurance has been available in the market for more than 15 years, it has seen rapid growth in only the last five or so years. Whereas mergers and acquisitions lawyers once tried to negotiate around potential problems, lawyers for both sellers and buyers are now increasingly looking to shift the risk of unintentional and unknown breaches of the representations and warranties in a Purchase and Sale Agreement to an insurance company. Nevertheless, among the common types of available insurance products, R&W insurance may be the least understood. Continue reading “Representations and Warranties Insurance”
Erin L. Webb
Exelon Corp., the largest United States nuclear operator, announced recently that it would agree to purchase Pepco Holdings, Inc. for $6.8 billion in cash. Pepco no longer generates its own power, but serves utility customers from Washington, D.C. to New Jersey. Bloomberg reports that this merger, if approved, would create the largest electric and natural gas utility in the Mid-Atlantic region.
The merger will require approval by both the Federal Energy Regulatory Commission and the public service commissions in the relevant states and the District of Columbia. It will also need to pass antitrust review by either the Department of Justice or the Federal Trade Commission. Lawyers, consultants, and accountants for both companies will undoubtedly conduct extensive diligence reviews. Continue reading “Exelon-Pepco Merger Highlights Importance of Insurance Coverage Analysis in Mergers and Acquisitions”
Insurance-related issues are a critical aspect of any merger or acquisition and should be addressed early in the deal process. The insurance-related issues that may arise in deal contexts are too many to address here, but companies entering a potential deal should keep the following considerations in mind.
Evaluate liabilities, exposures, and insurance program. Evaluating a target company’s insurance program frequently sheds light on the company’s overall operations and quality of the company being purchased. A target company that presents a poor insurance risk relative to its loss history may also be a poor business risk. Accordingly, a party to a potential deal will be well-served to evaluate the target company’s operations to determine current liabilities and exposure to loss, and thoroughly examine the target company’s insurance portfolio to determine if existing insurance is likely to cover the liabilities. The analysis may also inform decisions regarding the need for future insurance purchases to fill any gaps in coverage for potential loss exposures. To conduct these evaluations and examinations, the company and its insurance coverage counsel should obtain the target company’s current and historical insurance policies, any coverage charts that may exist, pleadings from any litigation in which the target is involved, and loss history reports. Also, if possible, interviewing the target company’s internal legal and risk management teams and outside insurance coverage counsel frequently provides an efficient means to obtaining key information and answering questions. Continue reading “Insurance Implications for M&A Deals”