Representation and warranty insurance has fundamentally reshaped how home care M&A transactions are structured. Ten years ago, sellers routinely faced 10%–20% escrow holdbacks and survival periods of 18–36 months on representations. Today, in deals where R&W insurance is in place, sellers commonly walk away with 99% of proceeds at close and post-close exposure capped at policy retention.
For sellers, understanding R&W is no longer optional. This guide covers the mechanics, costs, and negotiation dynamics that matter.
A buyer-side R&W policy (the standard structure) covers the buyer for losses arising from breaches of the seller’s representations and warranties in the purchase agreement.
Typically covered:
Typically excluded:
For home care, healthcare regulatory underwriting is the central diligence focus — payer billing compliance, licensure, HIPAA, anti-kickback, Stark.
Typically 2.5%–4.0% of policy limit. Healthcare deals often price toward the higher end of the range due to regulatory complexity.
Typically 10%–15% of enterprise value. Larger deals may use lower percentage limits; smaller deals may use higher.
Typically 0.75%–1.0% of EV, dropping to 0.5% after 12 months. Retention is split between buyer and seller in negotiated proportions.
Typically $30K–$75K for legal, financial, and regulatory diligence.
For a $50M EV deal with $7.5M policy limit:
For most sellers, this is dramatically less expensive than traditional escrow opportunity cost over 18–36 months.
Net seller benefit: Often 8–15% of purchase price moves from “at risk for 18–36 months” to “received at close.”
R&W carriers underwrite home care deals with particular attention to:
A clean third-party billing audit is often a precondition for R&W underwriting at favorable pricing.
Critical LOI provisions:
Sellers who do not raise R&W at LOI stage often find buyers structuring around traditional escrow. Raising R&W early establishes the structural baseline.
1. Not raising R&W early. Many sellers learn about R&W only after LOI is signed with traditional escrow language.
2. Accepting full retention exposure. Retention split should be negotiated, not defaulted to seller.
3. Underestimating underwriting diligence. R&W carriers conduct independent diligence; sellers must be prepared.
4. Disclosure schedule sloppiness. Disclosure schedules drive R&W coverage. Disclosed items are excluded; non-disclosed material items create breach exposure.
5. Not coordinating with QoE. Quality of Earnings findings inform R&W underwriting. Coordination matters.
Hendon Partners structures R&W into LOI negotiation from the beginning of every appropriately-sized engagement, coordinating with M&A counsel and R&W brokers to ensure sellers maximize the structural benefits of R&W in their deal. For sellers below standard R&W thresholds, we evaluate specialty markets and alternative structures.
Schedule a confidential conversation about your deal structure →
Hendon Partners is a sell-side only home care M&A advisory firm. We do not sell insurance and have no carrier relationships that affect our advice.
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