Encouraging news about COVID-19 vaccination trials and the impending resolution of the long election process bode well for deal activity in 2021, according to M&A and insurance recovery lawyers from Lowenstein Sandler. With an anticipated increase in financial transactions, competition among insurers is also expected to heat up, making this an ideal time for private equity funds, investment banks, and operating companies to implement carefully crafted representations and warranties (R&W) policies to protect themselves going forward.
The last decade’s deal activity spurred the growth of R&W insurance–an alternative risk-transfer mechanism to indemnify buyers for breaches stemming from a seller’s misrepresentations in acquisition agreements. As reported in the firm’s recent publication Getting Paid: A Look at Representations & Warranties Insurance, R&W insurance has become so popular that, to be considered competitive bidders, “buyers are becoming increasingly required to include such insurance as a deal term,” says Lynda A. Bennett, partner and Chair of Lowenstein’s Insurance Recovery Group, and coauthor of the report with counsel Eric Jesse. She predicts that a resumption of deal activity in the last quarter of 2020 and in 2021 will result in “heavy competition, declining premiums, and lowering SIRs over time, as well as increased leverage for policyholders to negotiate policy terms.”
Lowenstein’s Mergers & Acquisitions group saw deal activity slow slightly in the early months of the pandemic, only to pick up dramatically in recent months.
The firm has represented clients in a number of large transactions lately, including most recently the acquisition of longtime client InSite Wireless Group, LLC by American Tower Corporation (NYSE: AMT) for approximately $3.5 billion.
Steven E. Siesser, Chair of the firm’s Private Equity group and Co-chair of its Transactions & Advisory Group, notes that declines in M&A are often followed by steep increases, as evidenced by the market upswing after the financial crisis of 2008. He observes: “There continue to be significant amounts of capital available for transactions, particularly with the pent-up demand from the COVID-related downturn in the M&A market. There is a confluence of factors that will continue to drive M&A to a resurgence, such as concerns of rising tax rates, the need to replace lost growth opportunities, and market disruption.” Notably, the firm’s private equity deal activity continues to trend upward, so much so that Lowenstein Sandler has ranked among top law firms by number of deals in private equity for seven consecutive quarters in The Deal.
Bennett advises that “now is the time for companies to prepare for these imminent transactions by making sure their R&W coverage is secure and bespoke to their individual specifications and business objectives.”
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