Case Study
Secondary Transaction | Solving Unique Challenges
The Request
RWI for continuation fund transaction
Company Profile
Acquirer Type: Secondaries Transaction/Continuation Fund
Target Industry: Various
Request
A private equity customer wanted to create a continuation fund for two of its distressed portfolio companies, which would allow its limited partners to choose to realize on a return or continue on with the investment. The customer retained Brown & Brown to secure representation and warranties insurance (RWI) for the transaction.
The customer wanted to provide the buyers with an indemnification mechanism for breaches of the sellers’ representations and warranties in a related-party transaction with minimal due diligence.
The Solution
Public-style RWI workaround
The legacy general partner (LGP) was reluctant to execute the transaction. While they ultimately agreed to the transaction under pressure from its Limited Partners, they demanded that the transaction be structured as a “public-style” transaction, meaning that the representations and warranties terminate at closing.
This approach would leave the buyer with no recourse for breaches of the LGP’s representations and warranties except in the case of the LPG’s fraud. Even more challenging for Brown & Brown and the buyers, the LGP refused to cooperate with the RWI underwriting process.
The Results
1. Secured RWI coverage
2. Streamlined underwriting
3. Alternative diligence approach
- Brown & Brown placed an RWI policy to provide the customer with protection against the LGP’s breaches.
- Generally, underwriting RWI for secondary transactional includes separate underwriting calls with the “Lead Investor” and the LGP.
- By leveraging our relationships with carriers, we successfully persuaded the RWI carrier to underwrite the transaction with minimal participation by the LGP and instead rely on (i) the information in the data room and (ii) additional due diligence by the Lead Investor.
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