The Sell-Buy Flip

It is increasingly common in the private company market for entities and individuals who are disposing of an asset or shareholding to seek to restrict their potential post-sale liability. Claims for breaches of warranties given by the sellers and management under the Sale and Purchase Agreement (SPA) are on the rise, and corporates and financial investors need to understand the mechanics behind the complex world of transactional risk insurance.

There is now a clear bias towards limited or no recourse deals, driven by the desire by sellers to achieve the holy grail of a ‘clean exit’. This penchant for nil recourse transactions has seen an increase in the number of transactions where the seller(s) requires the buyer(s) to take out a buy-side warranty and indemnity (W&I) insurance policy.

This process for the procurement of W&I insurance has, in the world of transactional risk insurance, come to be described colloquially as the ‘sell-buy flip’. Although the sell-buy flip has overwhelmingly been a feature of transactions where the sellers are private equity backed, from our experience it is becoming increasingly common amongst corporates sellers, in order to facilitate a clean exit.

The purpose of the Sell-Buy Flip paper is to outline:

• The steps involved in the sell-buy flip„.
• Some provisions that are included in SPAs where the use of W&I insurance and a sell-buy flip is being contemplated.„
• The potential pitfalls in running a sale process that involves a sell-buy flip.„
• Tips and tricks to mitigate these potential pitfalls (or eliminate them completely where possible)„„.
• Some global trends in relation to sell-buy flips.