As I mentioned in my Deal Note® “The Rise of RWI”, written a year ago, Representations and Warranties Insurance (“RWI”) has become popular for larger transactions within the middle market of the aerospace and defense industry. However, it is not the only way to structure credit protection for breaches of the seller’s representations and warranties. Another common structure, traditionally used in transactions under $50 million, is to utilize Indemnity Escrows.
An Indemnity Escrow structure involves placing a portion of the sale proceeds into an escrow account (typically at a commercial bank) and setting forth, in the purchase agreement, specific terms under which the buyer can withdraw funds from that account, to support claims against the seller for breaches of representations and warranties.
For our most recent five transactions, where Indemnity Escrows were utilized, the average dollar amount was 9.8% of the purchase price.
Have a great day everyone.
Ryan Kirby
Vice President
