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Representation and warranty (R&W) insurance covers the risk of a target company’s seller breaching representations and warranties in the securities purchase agreement. (Photo: Shutterstock)

Private equity firms and companies use transaction liability insurance to manage the risk inherent in mergers and acquisitions. Representation and warranty (R&W) insurance is a type of transaction liability insurance that covers the risk of a target company’s seller breaching representations and warranties in the applicable securities purchase agreement. R&W insurance was first created decades ago but has become increasingly popular in the past few years, particularly among private equity firms, which use it to facilitate the purchase and sale of portfolio companies.

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