Securing the deal: how W&I insurance can unlock MENA’s M&A potential

Daniel Sterling

Senior Associate

Mahmood Abdellatif

Associate

Omer Mahdi

Head of M&A and Transaction Solutions, Aon

Warranty and indemnity insurance (W&I), known as representations and warranties insurance (RWI) in the US, has evolved from a specialist product for private equity firms in the US and UK to a mainstream feature in corporate M&A transactions globally. It now serves as a critical deal facilitator, enabling sellers to achieve clean exits and giving buyers and lenders confidence in the availability of post-closing recourse. Understanding how W&I insurance operates and the prevailing market practices is increasingly essential for venture capitalists, institutional investors, and startup founders in the MENA region.

The strategic value proposition

For sellers

W&I removes most of the friction by shifting unknown breach risk from the buyer and seller to an insurer. For sellers (including founders and early investors), it means:

Walking away with more cash upfront and strongly limiting any cash held back through the use of an escrow or cash retention mechanism that would otherwise be used to cover any lingering of potential liability.
Potentially higher sale valuation or preferable terms as buyers have increased confidence that any downside risk is mitigated by the policy.

This clean exit capability is particularly valuable for founder-led companies where personal liability concerns can derail negotiations.

For buyers

For buyers (especially growth-stage and corporate investors), it means:

If the sale occurs through an auction, W&I can level the playing field for potential suitors, reducing the need for due diligence.
Backstop protection against unknown risks and meaningful protection against undisclosed liabilities, as even with thorough due diligence, some risks (such as legacy employment or environmental) can't be fully uncovered.
The ability to submit more competitive bids in auction processes since sellers can exit with minimal post-transaction liability.
Confidence in acquisitions where sellers are less well known, or jurisdictions are unfamiliar, knowing that unknown liabilities are covered by a reputable insurer.
Assurance to their own investors and co-investors that post-closing recourse exists, reducing friction between maintaining investor goodwill and managing new business relationships.

For both

The benefits of a W&I policy are by no means asymmetrical, with several mutual benefits which can be appreciated by either side in the transaction. For both buyers and sellers, it means:

Accelerated deal timelines, as shifting the risk to insurers streamlines negotiation of time-consuming provisions (such as limitations on liability and representations and warranties).
Credible post-closing recourse directed at a third party. The buyer will not have to sue the management team or selling founders, who will often be retained to assist in transitioning the business. This can be crucial in preserving the relationship between the parties and ensuring that the business is continued in the ordinary course.

How W&I insurance works: the mechanics

Coverage structure

In practice, most W&I policies today are structured as buyer-side coverage, meaning that if a breach arises, the buyer claims directly against the insurer rather than the seller. This direct relationship eliminates the need for buyers to pursue sellers for warranty breaches, streamlining the claims process.

Coverage periods

Coverage generally follows the survival of the warranties in the purchase agreement: around two to three years for general warranties and up to seven years for fundamental and tax warranties, or shorter where limited by statute. These timeframes generally align with standard M&A practice and statutory limitation periods, however, SPA liability periods can often be shorter depending on negotiations.

Financial terms

Policies are not unlimited; they can carry a retention or deductible, which is typically between 0.5% to 1% of enterprise value and may step down after the first year, with the insured party absorbing this initial loss and amounts above covered by the insurer. This retention structure ensures buyers maintain appropriate incentives for thorough due diligence while providing meaningful coverage for material breaches.

Premiums may be enhanced where additional liability is taken on by the insurer by, for example, removing the disclosure of the prepared due diligence reports or data room from the policy. This would typically be in addition to certain commonly used seller limitations such as a maximum limit of liability (typically around 30% of the enterprise value for breaches of the business warranties) as well as the de minimis and basket limitations to prevent small or immaterial claims.

Standard exclusions

Certain matters are routinely excluded, including issues identified in due diligence or other known risks, purchase price adjustments, forward-looking projections, pension deficits, areas where the insurer has not been given sufficient information, or areas where the warrantors (ie the founders, management, and/or directors) had 'actual knowledge' of the breach at the time the warranty was given. For these gaps, dedicated products such as tax or contingent risk insurance may be available. In any known due diligence items, specific indemnities may still be negotiated in the purchase agreement to protect against these uncovered risks. Finally, insurers almost always preserve the right to pursue sellers in cases of fraud, but otherwise, the commercial aim is to provide a clean exit for the seller without lingering liability.

The policies of different regions and equally differing approaches to insuring liabilities are set out in the data room, due diligence report, or warranties, which are otherwise qualified by a materiality threshold. These differences should be closely monitored and taken into account when selecting or enhancing a policy, particularly in relation to MENA transactions, given that standard market practices are still evolving as the use of such policies remains relatively new.

The placement process: a step-by-step guide

Phase one: early broker engagement

The process typically begins with early broker engagement, where brokers provide non-binding indications on pricing, retention, and likely exclusions. These early signals often shape negotiations on the share purchase agreement itself. Smart practitioners engage brokers during the auction or negotiation phase, not as an afterthought.

Notwithstanding that W&I is primarily a form of buyer protection, sellers will often make first contact with the insurance broker early in the transaction (known as the 'soft-staple' approach). The buyer will then work directly with the broker to update the terms of the buyer's required insurance coverage before proceeding to the underwriting phase.

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Next step

Phase two: underwriting

Once a preferred insurer is identified, the underwriting phase begins. Insurers review due diligence reports, transaction documents, and disclosure schedules in detail and hold calls with the advisers to test the depth of diligence. A helpful rule of thumb: if you would not share a piece of analysis with your own investment committee, do not expect an insurer to cover the risk. Policies are then negotiated in tandem with brokers to maximise buyer coverage.

As an alternative to the soft-staple approach, and more commonly used in the UK and European markets compared to the US, the seller may underwrite the transaction via the use of a vendor due diligence report (known as the 'hard-staple' approach). The insurer is then selected, and the buyer receives the largely underwritten policy, along with a guidance note detailing what buy-side diligence the insurer believes is needed to finalise the policy. The policy is then advanced to a near-final position, with the only outstanding point being the assessment by the insurer of any buyer-top-up due diligence.

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Phase three: policy finalisation and binding

Policy terms are then finalised in parallel with the SPA, with binding usually occurring at signing or closing to avoid any coverage gaps. Co-ordination between legal counsel, brokers, and insurers is critical during this phase.

While the hard-staple approach reduces the timeline to put a policy in place and would more commonly be used in a competitive auction process for the same reason, it also reduces the buyer's flexibility, as it cannot select a different insurer later in the process. As a result, the buyer must rely on the seller and broker to ensure that a suitable insurer for the transaction is instructed.

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Phase four: claims management

Finally, if a claim does arise, buyers must provide notice promptly, carefully document the loss, and co-ordinate closely with the insurer throughout the process.

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Market dynamics: US vs UK

United States

In the US, RWI is standard in middle-market and sponsor-led deals. Premiums generally range from 2.5%-4% of the insured limit, with retentions starting as low as 0.5% of enterprise value (sometimes dropping further after 12 months). Policies are integrated into auction processes, with insurers conducting expedited underwriting based on a buyer's due diligence. Sellers often expect limited or even no escrow or holdback, and buyers rely on the policy as their main remedy. In US RWI policies, the excess was traditionally 1% of the enterprise value, dropping to 0.7% after 12 months, however, it's not uncommon to see this even lower at 0.5% of the enterprise value, dropping to 0.3% after 12 months.

Key US characteristics:

Higher premium rates but faster placement timelines.
Integration into competitive auction processes.
Claims experience has matured: insurers are paying claims, especially in areas like financial statement accuracy and compliance with laws.

For US venture-backed companies exiting through M&A, RWI is increasingly viewed as an essential tool to protect both buyers and the broader investor syndicate.

United Kingdom and Europe

The UK and broader European markets adopted W&I earlier, and policies have become highly standardised. Competition among insurers has kept premiums relatively low, particularly after a fall in M&A volumes post-2021, often around 1% of the enterprise value in some cases. Unlike in the US, synthetic warranties and seller 'nil recourse' exits are more common, reflecting a more buyer-friendly insurance approach. However, European underwriters are often stricter on due diligence standards, and buyers must be prepared to demonstrate thorough investigation across tax, employment, and regulatory matters to secure coverage.

Key UK/European characteristics:

Lower premium rates due to market maturity.
More standardised policy terms.
Stricter underwriting standards.
For cross-border deals involving UK or European targets, investors in MENA should anticipate these norms.

MENA market opportunity and readiness

Market drivers

MENA deal flow is accelerating, sovereign platforms are consolidating, founder-led companies are recapitalising, and sectors like healthcare, digital infrastructure, and logistics are scaling. This infrastructure makes MENA ripe for W&I adoption.

Current state and future outlook

In the MENA region, the use of W&I is increasingly common, particularly in the UAE. The logic is compelling: family business exits, founder-led sales, and sovereign-backed transactions often involve sellers who want a clean break while reducing the likelihood of inter-subsidiary claims and are unwilling to tie up proceeds in escrow.

Structural advantages

Similarly, international buyers acquiring regional targets may want the comfort of insurance-backed protection, given disclosure and due diligence limitations. English law SPAs are already the norm in DIFC and ADGM transactions, meaning that W&I products designed for the UK market can often be adapted with minimal friction. However, where a buyer resides outside MENA, drivers for specific policy terms in MENA (ie whether the approach will follow UK/EU or US standards and practices) will likely follow suit. As insurers and brokers expand their footprint in the region, usage is likely to grow.

MENA-specific considerations

Documentation and disclosure standards

Disclosure standards are particularly important: well-organised and thorough disclosure letters and schedules responsive to warranty scope are essential to satisfy insurer expectations. Some insurers may even require bilingual versions (Arabic/English).

Financial reporting requirements

On the financial side, alignment with IFRS, credible quality of earnings analyses, and transparency around related-party transactions are critical. Reputable third-party advisers are preferred.

Regulatory focus areas

Regulatory due diligence is also a recurring focus area, especially on anti-money laundering, sanctions, licensing, and data localisation, and increasingly, anti-bribery (particularly in the UAE and KSA).

Governance structures

Finally, governance structures, whether founder led or involving family offices, often attract heightened underwriting scrutiny, but with quality advisers and professional management, insurers are comfortable underwriting a wide variety of structures.

Best practices for MENA practitioners

Pre-transaction planning

For those considering W&I, a few practical steps can significantly improve outcomes. Engage a broker early, allowing them to shape indemnity terms around market-tested structures. Undertake comprehensive written due diligence across legal, tax, accounting, HR, and cyber disciplines, as insurers will review it all.

Documentation excellence

Ensure disclosure letters and schedules are clean, bilingual (if necessary), and responsive. Segment known risks such as tax, litigation, or regulatory exposures and consider separate policies to address them.

Deal structure alignment

Align W&I policy features such as retention, escrow, and survival periods with financing terms and lender expectations. And finally, build disciplined processes for claims hygiene, including timely notice, robust loss calculation, and mitigation planning terms with financing, lender requirements, and claims management protocols.

Optimal transaction types for W&I coverage

Certain transactions are especially well suited to W&I cover:

Private equity exits: Facilitate clean, rapid exits for funds.
Cross-border transactions: Provide neutral, creditworthy recourse in unfamiliar legal environments.
Competitive auctions: Auctions with compressed timetables benefit because sellers can offer clean exits without protracted indemnity negotiations.
Corporate carve-outs and fund-to-fund secondaries: Resolves indemnity resistance and escrow disputes.
Distressed or accelerated sales: Synthetic warranties keep deals viable.
Growth capital transactions: Even growth or minority deals can be facilitated, providing buyers recourse without placing disproportionate liability on founder sellers.

Common pitfalls and risk mitigation

Due diligence standards

W&I is not a silver bullet. It should never be treated as a substitute for thorough due diligence. If due diligence is light or rushed, insurers may exclude key risks.

Timing and process management

Brokers should be involved early enough to shape the economics of the SPA, not as an afterthought.

Coverage limitations

Known issues, forward-looking projections, and areas without documentation are unlikely to be covered. Policies also carry costs in both premiums and underwriting fees, which need to be weighed against the benefits.

Claims reality

Finally, while insurers do pay out, the claims process can be lengthy and requires careful documentation. Buyers should budget time and resources if they expect to rely on a claim.

Strategic outlook for MENA

W&I insurance has transformed the M&A landscape in the US and UK, smoothing exits and bridging negotiation gaps. For investors, founders, and venture-backed companies in MENA, W&I insurance can be a competitive advantage. As deal sophistication rises across the region, expect W&I to become a go-to tool in venture and growth-stage exits, particularly in sectors like technology, healthcare, and infrastructure. The convergence of several factors, including increasing deal flow, sophisticated international buyers, established English law frameworks in key financial centres, and expanding insurer presence positions MENA for a significant increase in W&I adoption.

Proactive consideration of W&I insurance in exit planning is rapidly moving from an option to a necessity for venture capitalists and institutional investors. Those who harness its advantages stand to maximise deal value, streamline negotiations, and secure peace of mind in an increasingly competitive market.

It is worth noting that the recent softening of the W&I insurance market in MENA has led to a substantial decline in premium rates. While this development has been positive in driving wider adoption and making coverage more accessible to parties across the region, there are inherent risks if rates fall to unsustainable levels. Insurers must be able to maintain rigorous underwriting standards and deliver on claims, which requires evaluating the long-term viability of reduced premiums. As a result, it's important for clients to manage their expectations, recognising that while competitive rates are attractive, maintaining the quality, responsiveness, and sustainability of W&I coverage is equally crucial for the ongoing success of the market.

If you're not thinking about W&I when planning your exit, you might be leaving value and peace of mind on the table. For venture capitalists and institutional investors, incorporating W&I considerations into portfolio company exit planning is no longer optional, it's a competitive necessity in today's market environment.