Glossary
The world of corporate acquisitions (M&A) is filled with complex terms and English jargon. To make the process clearer and help you understand the value of M&A-insurance, we have compiled a glossary of the most common and important concepts.
Glossary
The world of corporate acquisitions (M&A) is filled with complex terms and English jargon. To make the process clearer and help you understand the value of M&A-insurance, we have compiled a glossary of the most common and important concepts.
Share Purchase Agreement (SPA)
Share Purchase Agreement (SPA)
The legally binding agreement that governs the terms of a corporate acquisition. The agreement contains the warranties that the seller provides about the target company, and it is these warranties that a W&I insurance primarily covers.
Clean Exit
Clean Exit
One of the main goals for a seller in an M&A process. A "clean exit" means that the seller can leave the transaction behind without remaining financial responsibility for future warranty breaches. W&I insurance (especially a buy-side policy) is the most effective tool for achieving a clean exit, as the buyer's potential claims are directed against the insurance company instead of the seller.
De Minimis
De Minimis
A threshold value for minor damages. To avoid administration around many small claims, an agreement is made that individual damages below a certain amount (e.g. SEK 50,000) are not counted when summing damages to reach the deductible. This is called the "de minimis" threshold.
Due Diligence (DD)
Due Diligence (DD)
The buyer's review and examination of the target company. A thorough Due Diligence in areas such as finance, legal and tax is a prerequisite for being able to take out W&I insurance, as the insurer bases its risk assessment on the buyer's DD reports.
Escrow
Escrow
A traditional method of securing the buyer's potential claims against the seller. A portion of the purchase price is deposited in an escrow account for a certain period. W&I insurance is a modern alternative to escrow, which releases the entire purchase price to the seller directly upon completion.
Insurance Amount (Limit of Indemnity)
Insurance Amount (Limit of Indemnity)
The maximum amount that the insurance can compensate in the event of a claim. The amount usually corresponds to 10-30% of the transaction value (Enterprise Value) but can be adapted as needed.
Insurance Period
Insurance Period
The time period during which the insurance is valid and claims can be made. For general warranties, the period is often 2-3 years, while for tax warranties it can be up to 7 years to match the statute of limitations for tax claims.
Warranties
Warranties
The representations and promises that a seller makes in the share purchase agreement about the target company's condition, operations and financial position. If a warranty proves to be incorrect, a warranty breach occurs, which can lead to a claim for compensation.
Known Risks
Known Risks
Risks or problems identified during the Due Diligence process. These are normally excluded from insurance coverage and must be handled separately in the share purchase agreement, for example through a specific indemnity or an adjustment of the purchase price. W&I insurance covers unknown risks.
Buy-side policy
Buy-side policy
The most common type of W&I insurance, where the buyer is the policyholder. This allows the buyer to direct their claim directly against the insurance company instead of against the seller, which simplifies the process and preserves the commercial relationship.
Purchase Price
Purchase Price
The total price that the buyer pays to acquire the target company. The purchase price can consist of several parts: for example, a cash payment, shares in the buyer's company or a so-called "earn-out", where part of the payment is conditional on future results. In M&A, the term Purchase Price is used, and it is a central component in the share purchase agreement (SPA).
Leakage
Leakage
Unauthorized value transfers from the target company to the seller (or related parties) during the period between signing and completion. Share purchase agreements contain specific warranties that protect against this, and breaches of these "leakage warranties" are normally covered by W&I insurance.
M&A (Mergers & Acquisitions)
M&A (Mergers & Acquisitions)
English abbreviation for corporate mergers and acquisitions.
Deductible
Deductible
The portion of a claim that the policyholder must bear before the insurance begins to pay compensation. The deductible in a W&I insurance is often "tipping", which means that when damages exceed the deductible level, the insurance company pays out the entire amount from the first krona. Normally, the deductible is around 0.5-1.5% of the Purchase Price.
Indemnity
Indemnity
A specific compensation obligation in the agreement that covers an identified and specific risk.
Claims
Claims
The process where the policyholder reports a claim (a warranty breach) to the insurance company to receive compensation. A smooth and efficient claims process is one of the most important aspects of a good W&I insurance.
SME (Small and Medium-sized Enterprises)
SME (Small and Medium-sized Enterprises)
SME is an international abbreviation that stands for Small and Medium-sized Enterprises. In Swedish it is called små och medelstora företag (SMF), and includes companies with up to 250 employees. In M&A (corporate acquisitions), the term often refers to companies with revenue between approximately 5 and 500 million kronor. SMEs form the backbone of business in both Sweden and the rest of the Nordics and are often owner-managed, making them particularly relevant for generational transitions, acquisitions and sales.
Underwriting
Underwriting
The insurer's risk assessment process. An "underwriter" reviews the buyer's Due Diligence material, the share purchase agreement and asks questions to be able to assess the risk and determine the terms (including premium and exclusions) for the insurance.
W&I Insurance (Warranty & Indemnity Insurance)
W&I Insurance (Warranty & Indemnity Insurance)
An insurance designed for M&A transactions that protects against financial loss as a result of breaches of the warranties and indemnities provided in a share purchase agreement.
We offer secure protection for buyers and sellers.
1. Fill in your information
Enter purchase price, revenue & desired insurance level in the premium calculator for a clear price estimate of your M&A-insurance.
2. We review your request
You receive a free & non-binding quote within 24h, including insurance terms and contact with a personal broker.
3. Sign digitally without hassle
Provide damage declaration & transfer agreement. If you want to proceed, you sign digitally without hassle.
4. The deal becomes safer for everyone
The insurance is activated at completion. Should any claim be made, it is handled by the insurance company and not by the seller.