ANALYSIS: How Often Does RWI Appear in M&A Agreements?

The number of publicly filed M&A agreements containing references to representations and warranties insurance (RWI) dropped 51% from 2021 to 2022, but this number isn’t necessarily a cause for concern. Last year’s tumble follows the M&A market’s broader trend, and data gleaned from publicly filed M&A agreements over the past 10 years demonstrate an overall increase in the prevalence of RWI-related provisions.

RWI has been a topic of growing interest in the M&A space in recent years, and it can affect many aspects of a merger or acquisition. RWI references can appear in various sections of an M&A agreement, including the representations and warranties and covenants articles, as well as in indemnification, expense, holdback, or escrow provisions. Some deals may not even discuss an RWI policy in the ultimate agreement.

But how often do deal parties include references to RWI in their transaction agreements?

An advanced search of M&A agreements filed with the SEC via EDGAR using Bloomberg Law’s Precedent Search yielded 1,005 unique M&A agreements signed between Jan. 1, 2018 and Dec. 31, 2022 that included references to RWI. (The total number of search results was greater than 1,005 due to the inclusion of agreements signed in 2023, duplicate filings made by different parties, and M&A agreements that were dated prior to 2018, all of which were excluded from this review.)

Among the search results were 298 M&A agreements signed in 2021 that contained references to RWI, compared to just 146 in 2022. Last year’s number was the lowest since 2018—when there were 182 agreements signed that included RWI provisions—and represented a 51% drop from 2021’s peak. Though the drop is striking, 2021 appears to have been an outlier year, with record-breaking deal activity. Last year was more in line with 2018–2020’s numbers, and it mirrors 2022’s overall deal activity slowdown, which resulted in some of the lowest quarterly deal volumes in years.

Moreover, a comparison of the total number of publicly filed M&A agreements by filing date and calendar year to the number of those agreements that include RWI provisions over a longer period of years shows that there’s been an overall increase in the prevalence of RWI references in M&A agreements.

Based on this data, there’s been an upward trend in the proportion of publicly filed M&A agreements that include references to RWI over the past 10 years. This increase is marked by periods of relatively modest increases and instances of larger jumps in the proportion of M&A agreements that include RWI provisions before the decrease from 2021 to 2022. And even though this large decrease also was the first year-to-year drop in percentage for the period reviewed, 2022’s proportion of publicly filed M&A agreements that contained RWI references fell back in line with pre-2021 percentages.

If 2023 follows the general trend, the inclusion of RWI references in M&A agreements will continue its slow climb this year.

Bloomberg Law subscribers can find related content on our M&A Deal Analytics resource, as well as our Practical Guidance on Merger R&W and Practical Guidance on Merger Covenants documents.

If you’re reading this on the Bloomberg Terminal, please run BLAW OUT <GO> in order to access the hyperlinked content or click here to view the web version of this article.