MAJOR LEGAL TRENDS FOR 2018 JEGI MEDIA & TECHNOLOGY CONFERENCE

Transcription

1 MAJOR LEGAL TRENDS FOR 2018 JEGI MEDIA & TECHNOLOGY CONFERENCE Robert W. Dickey January 18, Morgan, Lewis & Bockius LLP

2 REPRESENTATION AND WARRANTY INSURANCE A lot of times people don t know what they want until you show it to them. - Steve Jobs

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4 Where We Started Representation and Warranty Insurance (RWI) originally developed in 1999 For over a decade, it was almost a total nonfactor in M&A transactions Started to get traction in early to middle part of this decade At this conference in 2015, we suggested that it might become the new staple 3

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6 Where We Are Now RWI featured in 29% of private company acquisitions in most recent ABA study At least 19 primary RWI underwriters Competition has driven pricing down The perception that insurers are unlikely to pay on claims has faded What is covered? Representations and warranties, not covenants Traditional exclusions (e.g., tax; environmental) have narrowed Concept of Seller skin in the game is less important Buyer policies typically provide broader coverage (e.g., cover Seller fraud; longer survival periods) 5

7 Benefits for Buyers Increase amount or duration of post-closing recourse Reduce or eliminate Seller credit risk Provide recourse when no Seller indemnification is possible Distinguish bid in auction Protect key relationships (e.g., management; provider of transition services) 6

8 Benefits for Sellers Reduce or eliminate post-closing contingent liabilities Facilitate distribution of sale proceeds Protect passive Sellers Maximize potential offers by providing Buyers with meaningful post-closing recourse Propose RWI as sole post-closing recourse in auction processes 7

9 Process, Timing, and Costs Soliciting quotes, usually working with insurance broker, is first step No longer viewed as slowing a transaction process days from quote to binder Insurer will require access to due diligence materials and reports, deal documents, and deal teams Pricing generally 3% or less of coverage limits Retention amounts generally 1% or less of deal value 8

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11 Pressure Points and Traps for the Unwary Exclusions Procedures Interim period coverage Interplay with other forms of Buyer recourse Retention erosion/drop-down Definition of loss Materiality scrape Sandbagging RWI documents need to be negotiated in order to harmonize them with the other transaction documents The presence of RWI in a transaction does not obviate the need to be thoughtful about post-closing recourse issues 10

12 THANK YOU 2018 Morgan, Lewis & Bockius LLP 2018 Morgan Lewis Stamford LLC 2018 Morgan, Lewis & Bockius UK LLP Morgan, Lewis & Bockius UK LLP is a limited liability partnership registered in England and Wales under number OC and is a law firm authorised and regulated by the Solicitors Regulation Authority. The SRA authorisation number is Our Beijing and Shanghai offices operate as representative offices of Morgan, Lewis & Bockius LLP. In Hong Kong, Morgan Lewis operates through Morgan, Lewis & Bockius, which is a separate Hong Kong general partnership registered with The Law Society of Hong Kong as a registered foreign law firm operating in Association with Luk & Partners. This material is provided for your convenience and does not constitute legal advice or create an attorney-client relationship. Prior results do not guarantee similar outcomes. Attorney Advertising. 11