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Global PE firm optimized M&A insurance when selling its Port. Co.

A leading global U.S. based Private Equity firm sells its portfolio company with higher marketability and liquidity while purchasing Insurance for the Sale with a much higher payout ratio and a lower net cost than alternative options.

Challenge

A leading Private Equity firm based out of New York was keen on seeking solutions for Transactional Liability (TL) insurance, aka. Representations and Warranties insurance, on the sale of one of its portfolio companies after being approached by several Insurance Brokers with different quotes.


Discovery

We discovered that all the quotes provided by the various Insurance Brokers entailed off-the-shelf coverage that was not altered to match the transaction’s risk profile, and as a result had Insurance Basis Risk (IBR)* of over 90%. We devised a plan for the portfolio company to (a) increase the probability of payout on its TL insurance; (b) transfer core operational risks under the same TL insurance for added security to the Buyer translating into higher deal marketability; and (c) reduce net cost while maintaining the advantages of the policy respecting the release of escrow capital.


Impact

  • TL insurance was restructured word by word to match Seller’s risk profile and reduce IBR under 10%
  • Significant cost savings were achieved through a successfully managed Broker RFP

(> 40% of savings off initially quoted premium and fees). 

  • Successfully managed a release in escrow capital given the restructured policy

*Insurance Basis Risk (IBR):  probability of non-payment or delay in payment of Insurance.

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