We want to walk away from the closing table with maximum cash and minimal escrow holdbacks. How do we structure a buyer side Representations and Warranties Insurance policy to reduce our indemnity exposure to a nominal basket and protect our exit proceeds?

Question

Tyler Smith · Accepted Answer

Traditional deals require the seller to leave ten to fifteen percent of the purchase price in a third party escrow account for twelve to twenty four months to cover potential breaches of representations and warranties. This deferral reduces your liquidity and exposes your hard earned exit proceeds to post closing disputes.

To maximize your cash at close, you should structure the deal using buyer side Representations and Warranties Insurance, or RWI.

With RWI, the insurance policy becomes the buyer's primary source of recovery for any post close losses resulting from a breach of your representations.

This allows you to negotiate your indemnity cap down to a nominal amount, often just one percent of the transaction value, and reduce your cash escrow holdback to a matching minimum.

To secure an affordable RWI policy, your corporate hygiene must be spotless.

Buyers and underwriters will examine your books, client contracts, and operational processes.

By showing them a highly organized data room backed by consistent EOS operational discipline, you make the business highly insurable.

This reduces the insurer's risk premium, minimizes your escrow holdback, and allows you to walk away from the closing table with maximum cash in hand.