What are the major reasons that buyers and sellers might take out M&A Insurance in Germany?

In Germany it is not so well established, but it is being used more and more. Statistics show that last year around one fifth of all M&A transactions in Germany had Warranty and Indemnity (W&I) insurance1 . It is mainly used on bigger deals, because fees are quite high, usually 2 per cent of transaction value with a minimum of 50,000 euros. This means that insurance doesn’t currently make sense on any deal below 5 million euros.

It becomes very useful in cross-border deals where trust is a bigger issue. Insuring the deal risk means the buyer doesn’t have to worry about getting paid, or set up escrow accounts to withhold part of the price as a guarantee. For the seller, it also means a clean exit, as the insurance indemnifies against all the representations and warranties. The seller can spend all the money received on the sale for new investments, which is particularly useful for private equity sellers