What we do
W&I
About
W&I, also known as M&A insurance or representations and warranties insurance, broadly offers protection for an unforeseen breach of warranties and indemnities relating to an M&A or investment transaction.
Cover only relates to pre-completion events and matters that were not known liabilities at the time of the sale. Parties to a transaction can allocate liabilities between them as part of pricing or other deal mechanisms, but it is impossible to accurately allocate unknown risk leading to reliance on warranties, due diligence, and disclosure.
Alpha TR can offer policy periods of generally up to 3 years from completion of the transaction with 7 years for fundamental (e.g. title and capacity) and 10 years for tax.
W&I, in its various forms, is designed to broadly overlay the transaction documents negotiated between parties with certain enhancements (e.g. financial thresholds).
The main drivers for seeking W&I are:
- Clean Exit: It is attractive for sellers to have no committed capital post-transaction (e.g. cash required to fund a theoretical warranty breach). In an investment fund context this allows proceeds to be distributed to investors or reinvested. Suggesting W&I to a seller in a competitive auction can make a buyer's bid more attractive.
- Model Certainty: An investment model can only consider known risks. W&I reduces portfolio volatility by covering unknown risks that could adversely affect returns.
- Requirement: Fund documents or leveraged finance providers can obligate investment managers to procure W&I.
- Increased Cover: W&I can offer enhanced cover compared with typical transaction documents, for example by providing a higher financial cap on liability than a counterparty is willing (or able) to offer. Alpha TR can offer up to £40m per policy. We do not apply a minimum.
- Alternative Recourse: Where the sellers are the management team who will continue to run the acquired business it is very unattractive for an investment manager to seek recourse against those managers.
- Covenant Strength: Alpha TR offers significantly reduced credit risk compared with individuals or entities that will be liquidated. AXA XL's credit rating is: S&P AA; Fitch AA; and AM Best A+. See our Risk Capital page.
- Counterparty: Alpha TR offers a counterparty that understands transactions and how to manage a claims process. Alpha TR's synthetic W&I product provides a counterparty in the absence of any other.
Products
- Buy-side
- The buyer is the policyholder. Our key underwriting focus is on the scope of the due diligence to ensure that the buyer has appropriately identified risks based on the information provided by the seller. Financial thresholds agreed between the parties are almost always enhanced by the policy.
- Sell-side
- The seller is the policyholder and the product more directly overlays the agreed sale agreement than buy-side W&I. The seller provides responses to underwriting questions which are supplemented by underwriter review of the data room, the buyer’s due diligence Q&A, and any seller due diligence.
- Secondaries
- Alpha TR is a market-leading provider of secondaries W&I. Secondaries transactions concern either an investor buying a limited partner’s stake in a fund, or a fund acquiring another fund’s assets (often with both funds sharing the same general partner).
- Synthetic
- A hybrid between buy-side and sell-side W&I depending on context and information available. The warranties provided by the policy can be more limited than market standard warranties and will only cover topics where Alpha TR can get comfortable.
Appetite
We specialise in private capital transactions, especially within the following parameters:
- M&A
- Ordinary M&A activity, especially involving private capital, is our core appetite.
- Asset
- We have very high appetite for asset transactions (vs acquiring a corporate).
- Secondaries
- Very high appetite. Alpha TR is a market leader in secondaries W&I.
- Distress
- Our team is unique in having expertise in distressed or pre-packed transactions.
- P2P
- Alpha TR has market leading public-to-private experience in a private capital context.
- Other
- Alpha TR has a track record of innovation and creativity. We are open to novel uses for W&I insurance (e.g. IPOs).
Limit
Alpha TR can offer policies covering up to £40m per risk. We do not apply a minimum.
Enterprise Value
Alpha TR has no restrictions on minimum or maximum transaction size. The team typically operate in the £250m to £700m range, but we have experience insuring multi-£billion projects.
Geographies
Alpha TR's team have a diverse international track record (>50 jurisdictions insured) with particular expertise in Europe, MEA, and APAC. Alpha TR has the regulatory and advisory network required to operate worldwide.
The following jurisdictions are specifically excluded from our appetite:
Afghanistan, Belarus, Cuba, Iran, Myanmar, North Korea, Russia, Syria, Venezuela, and any jurisdiction which is subject to UK, EU, or US sanctions. Alpha TR has no appetite for risks where the target business has the majority of its employees in the USA and derives most of its income from the USA — this does not exclude global businesses from appetite; the principle is that USA-centric businesses are outside of appetite.
Sectors
Alpha TR has experience underwriting a variety of sectors. We have restricted appetite for the following: thermal coal; tobacco growing and manufacturing; nuclear-related industries; controversial weapons industries; industries damaging/destroying ecosystems or natural world heritage sites; private military services; transportation of arms to conflict zones; animal testing as the main activity; new oil and gas exploration/development.
Accounts
We do not typically cover operational businesses without audited accounts unless, for example, the target is a start-up.
Exclusions
All W&I policies typically contain the following exclusions or otherwise restrict cover for: known or disclosed matters; criminal fines and penalties; transfer pricing (where there are intra-group cross-border transactions); pension underfunding (where there are employees); secondary tax including Pillar 2; forward-looking statements and projections.
We are required by Lloyd's to exclude: war and civil war; terrorism; radioactive contamination and explosive nuclear assemblies; asbestos.
Process
Each W&I risk is unique and so the process will vary on a case-by-case basis. The following steps are common to all projects:
- Submission: Alpha TR carries out a detailed review of the documentation received from the broker (e.g. information memorandum, draft sale agreement, target accounts) to assess insurability. A non-binding quote or a declinature should usually be issued within 48 hours of receipt of the submission. A quote will typically remain valid for 30 days.
- Expense Agreement: Prior to commencing underwriting, Alpha TR will either issue an expense agreement whereby the prospective insured contractually commits to cover Alpha TR's external advisory costs, or invoice for such costs up-front. All transactions are underwritten by Alpha TR, but external advisers are instructed on each deal to provide technical input and ensure a smooth process.
- Underwriting: The full suite of transaction documents, due diligence (for a buy-side policy) together with due diligence Q&A, and access to the deal data room will be provided to Alpha TR. An initial round of Q&A will be issued prior to commencing underwriting, with a supplementary round of specific questions as necessary.
- Underwriting Call: Once responses to Q&A are received an underwriting call is held with the policyholder and their advisers (if necessary) to gain a better insight into any risks identified. This is frequently forgone if written responses are comprehensive.
- Policy: Alpha TR will draft a policy reflecting the coverage offered in the quote, although this may be amended to reflect underwriting or where an initial assumption is not correct.
- Timing: The underwriting process can usually be completed in five business days from receipt of all due diligence reports provided that Alpha TR receives prompt, high quality responses to Q&A.
Enhancements
We can offer to enhance certain features of the underlying documents and ordinary W&I cover on a case-by-case basis.