© Varney Agency 2024

Transaction Risk

ALTERNATIVE Insurance Designed for
Private Equity and
Venture Capital

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What is RWI?

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  • An insurance policy that protects buyer against unanticipated/unknown breaches of seller’s representations and warranties and resulting losses
  • RWI can reduce or entirely eliminate a traditional seller indemnity or escrow
  • Coverage provided for all fundamental and non-fundamental representations and warranties, as well as a pre-closing tax indemnity
  • RWI can potentially provide additional protection over a typical M&A indemnities
  • Policy can be secured by a buyer or seller although vast majority are buy-side policies

Benefits to RWI

  • Minimize 10b-5 Disclosure for Sellers
  • Increase likelihood of No Survival clauses
  • Eliminate or minimize Materiality Scrapes
  • Eliminate or minimize indemnification escrows; limit to retention on policy
  • Minimize post-close Purchase Price Adjustments
  • Lower escrow sizes (from 10% of transaction to 0.5% on average)
Contact Varney Today To Find Out How RWI Can Help You!

Tax Insurance - an Investors tool

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Allows investor to allocate risk of tax loss

  • Address small probability of significant loss
  • Extend or add to survival of seller’s escrow or indemnity for buyer
  • Achieve economic certainty absent a PLR from the IRS
  • Mitigate counterparty credit risk in indemnity agreements
  • Replace escrowed cash or holdbacks
  • Internal comfort for investment committees or management approvals

Tax Insurance gets more deals done

Benefits of Tax insurance

Inside M&A Transactions

  • Replaces the need for specific indemnity or escrow and avoids price chipping;
  • Eliminates negotiation by replacing an unknown or uncertain tax with an inexpensive one-time premium; and
  • Can reduce or eliminate risk related to historic tax positions taken as well as tax issues arising from a transaction itself.

Outside M&A Transactions

  • Removes the tax uncertainty from tax planning and internal transactions as part of the company’s ongoing operations;
  • Replaces the need for a private letter ruling, or insures the outcome of a pending tax audit of a tax position; and
  • Can insure unknown risk associated with a corporation or partnership’s U.S. federal income tax return.

Example of Insurable Risks

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Qualifications and Exemptions

REIT, S-Corp, ECI, USTB, Treaty Qualification, USRPHC, PFIC, Substance, Withholding Tax, FIRPTA, 338(h)(10), Indirect Transfer Tax, LTCG

Deductions

Debt / Equity, Worthless Stock Deduction, NOL Availability / 382 / 384 Limitations, Ordinary vs Capital deduction

Valuation

Valuation & Cost Segregation, 311(b) gain, NOL Carryforward / GILTI / Subpart F Inclusions,

83(b) Elections, Qualified Basis

Transfer Pricing

Operational, Financial, Intellectual Property

Reorganization and Deferral

Acquisitive / Divisive Reorganizations (Spin-Off, Split-Off & Split-ups) Like-kind exchanges (1031),

Deferred Compensation, 409A

Credits

ITC, PTC, LIHTC, 45Q, FTC, State Tax Credits

Fund Risks

Carry – Income/Capital, Dissolution/hold back, Taxable Status

Holdco

Residency, Substance

Transactional

Withholding Tax, Revenue vs Capital, Interest Deductibility, Indirect Transfer Taxes, Treaty Applicability,

VAT/Sales, DAC6

Debt and Credit Facilities

Debt vs Equity, Withholding and transfer taxes, Loan Origination – season and sell issues

Real Estate

Transfer Tax. Real Estate Rich

Transaction process

1.Review transactional need and assess documentation

2.Develop package for submission to markets

3.Review Terms and potential issues with transactions

4.Execute Agreement to Underwrite

5.Insurer Underwrites full file

6.Negotiate Policy Terms

7.Issue Final Policy

Contact Varney Today And Speak With Our Experts

Transaction Team

Bob Desrosiers – Managing Director – Equity

Prior to joining Varney Bob spent the previous 20 years in Private Equity.  Known for his strategic thinking and hands-on leadership style, he exceled at providing guidance through mergers and acquisitions, structuring, diligence, and documenting transactions.

Now, at Varney, with a focus on building long-term relationships and delivering exceptional results, he excels in providing risk management guidance throughout the business cycle.  He has successfully navigated complex legal and tax strategies, permitting and compliance issues, and has worked on both leveraged, tax equity and non-leveraged transaction.

With a talent for problem-solving, Desrosiers has managed negotiations for distressed and non-distressed assets, sales of developed properties, and overseen compliance in multiple industries. His adaptability and ability to work across all levels of the organization make him a valuable asset in developing risk management strategies.

Email Bob Today to get started!