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Reducing Mergers and Acquisition Risks With Specialized Insurance

By Jeff Buzen Reps & Warranties Practice Leader, McGill and Partners | August 2025

This article was co-authored by Cari Hernandez, Hospitality & Entertainment Leader, McGill and Partners

Mergers and acquisitions in the hotel and hospitality sector have slowed amid economic uncertainty, but hotel investors’ outlook for deal activity remains optimistic, according to industry observers. Hotel buyers since the COVID-19 pandemic have been cautious, though many may not realize they can deploy a valuable form of specialized insurance that helps reduce deal risks.

This form of insurance, known as representations and warranties insurance (RWI) in North America and warranty and indemnity (W&I) insurance in other parts of the world, is designed to protect buyers and sellers in M&A transactions. Uncertainty can be a deal killer in any industry, and the hotel sector has had more than its share of uncertainty over the past five years. RWI and W&I offer a proven way to reduce/manage uncertainty from transactions, allowing buyers to realize the value of their investment and letting sellers make a clean exit, without the lingering risk of post-closing liabilities.

RWI and W&I insurance has historically been utilized by private equity firms, but an increasing percentage of corporate entities are buying the coverage. RWI and W&I is used across geographies, sectors and deal structures. Types of transactions that can benefit from this coverage include:

  • Buyouts and majority-stake investments
  • Minority stakes and growth investments
  • Carve-outs
  • Take-privates and public-to-public
  • Distressed transactions
  • Secondary investments
  • Joint ventures and mergers of equals or near-equals

All these kinds of deals can be found in many industries, including the hotel and hospitality sector.

Outlook for Hotel Investments

The outlook for hotel investments is bright, according to observers. CBRE surveyed U.S. hotel investors and found half of them intend to increase their investments, while 35% expect their acquisitions to remain about the same. Less than 16% expect M&A to decrease.

Jones Lang LaSalle estimates 2025 will see 15% to 25% growth in global hotel investment volume. Investor interest in hotel properties is most significant in urban gateway cities such as New York, London and Tokyo. Among the reasons JLL cited for its growth forecast are: maturing loans on existing assets, deferred capital expenditures, and exits by private equity investors as closed-end funds expire.

JLL sees hotel investment continuing its upward trend following a dip in 2023, when global transaction volume fell 27% to $53.5 billion. 2024 showed a rebound, with deal volume rising more than 7% to $57.4 billion. Growth in revenue per available room (RevPAR) also rose an average of 4% worldwide in 2024. The Americas, Europe and Middle East regions have seen RevPAR surge by double-digit percentages, with JLL expecting that metric to continue upward in 2025.

One driver of the forecast growth in hotel investment and financial performance, according to JLL’s analysis, is a resurgence of group, corporate and international travel, while the previously high level of leisure travel downshifts to a more moderate pace. JLL suggests the strength of the U.S. dollar and international investors with capital to deploy will lead to more cross-border hotel transactions in the future.

Notably, new sources of investment capital are entering the hotel industry. While private-equity firms remain a primary acquirer of hotel properties, 16% of 2024’s global investment volume came from first-time hotel investors, according to JLL. These include high-net worth individuals and family offices, as well as institutional investors.

Image: McGill and Partners

Advantages for Buyers and Sellers

Representations and warranties insurance offers numerous advantages for buyers as well as sellers in M&A transactions. Not least among them are easier negotiations during the transaction and preservation of the business relationship between the parties after the transaction closes. Adding certainty to deal-making allows the parties to get deals done more efficiently and effectively.

A RWI policy can allow buyer to obtain broader protection from a more credit-worthy counterparty than relying on a traditional seller indemnity. RWI also serves to improve a buyer’s bid or make it more competitive with other bidders. For sellers, RWI offers increased liquidity, limits or eliminates post-closing liability, and may attract a broader pool of bidders.

How RWI Works

Representations and warranties insurance policies are intended to provide financial protection arising from breaches of representation or warranty, covering the unknown risks that exist prior to signing and closing. The discovery or emergence of unknown issues can erode the enterprise value of a transaction or even keep it from closing.

RWI policies are underwritten alongside the buyer’s due diligence process, which means additional diligence in a transaction is usually not required to obtain insurance. Insurance companies offering RWI or W&I insurance generally require copies of financial statements, the transaction documents, due diligence reports, and access to the data room.

Even though transactions themselves may take months to complete, buying RWI coverage can happen quickly - often in two weeks or less. It’s prudent, however, for transaction parties to consult their risk and insurance advisors at the letter of intent (LOI) stage or prior to submitting final bids in order to understand the coverage terms available for that particular transaction.

The five largest drivers of RWI claims come in the hotel and hospitality sector come from:

  • Inaccuracies in financial statements. The cornerstone of any transaction’s value is the target’s financial condition. Misrepresentations in EBITDA, RevPAR, occupancy rates or undisclosed liabilities can significantly impact valuation. Financial statements claims are the most frequent and severe in this sector and others for RWI.
  • Customer and contract issues. Undisclosed disputes with key stakeholders - whether customers, travel agencies, vendors, management companies or franchise relationships - can materially impact future performance. This includes non-disclosed termination rights, restrictive covenant breaches, or material contract terms that deviate from industry standards.
  • Compliance with applicable laws. The hospitality sector faces multi-jurisdictional regulatory requirements spanning liquor licensing, health and safety codes, ADA compliance, and zoning restrictions. Regulatory problems can result in significant fines, remediation costs and potential business interruption that weren’t factored into acquisition modeling.
  • Employment and labor matters. With labor typically representing 30-40% of operating costs in the hotel and hospitality space, employment-related representations are critical for acquirors. Claims regularly arise from misclassification of workers, undisclosed collective bargaining obligations, inadequate immigration compliance, or benefits underfunding—all particularly relevant in an industry with high labor intensity and turnover.
  • Property condition and premises liability. Hotel assets require significant capital maintenance, making undisclosed physical deficiencies or deferred maintenance particularly problematic for buyers. Similarly, undisclosed premises liability claims from guests can result in substantial unanticipated costs and reputational damage, making thorough R&W coverage in this area especially valuable in hospitality transactions.

RWI is broad and readily available, with coverage generally provided for all of the above risks and others, and premiums that scale along with the desired amount of coverage. For these reasons, most RWI policyholders opt for policies that cover 10% to 25% of the enterprise value of the transaction. Greater coverage is available in the insurance marketplace, but it costs more premium dollars. A deductible or retention, usually 0.25% to 0.75% of the deal purchase price, can be borne by the buyer, seller, or shared between them.

RWI in a hotel transaction might look like this:

Open Door Hotel Group (a fictitious entity) enters an agreement to buy a 100-key upscale hotel in Charleston, South Carolina, for $75 million, or $750,000 per key. Open Door was attracted by the property’s location in historic Charleston, which draws both leisure and business travelers, as well the property’s long-term performance. But, the company was concerned about environmental and labor/employment risks that neither it nor the seller could foresee. For example, latent environmental damage could require temporary closure of the hotel and become a costly liability, and labor issues such as classification and work authorization are a significant exposure throughout the hospitality industry. To address Open Door’s concerns in these areas, it purchased a representations and warranties insurance policy to provide $20 million of coverage. With the policy, which had a retention of $375K, 0.5% of the transaction value, shared with the seller, and a total cost of $575K, Open Door was confident the deal would add value to its portfolio for the long term.

Coverage for Known Risks

RWI and W&I are intended for unknown risks in transactions, but additional specialized policies are available to cover known risks. These include tax insurance and contingent risk insurance.

A tax insurance policy offers financial protection if a tax position is not respected by the relevant tax authority (e.g., IRS, state and local, or foreign). This risk might arise from historical tax liabilities of the target entity or adverse tax treatment of the transaction itself. Generally speaking, so long as there is analysis supporting the tax position being taken that is at least at a “more likely than not” level of comfort, tax insurance is available to protect the risk.

Contingent risk insurance exists to provide customized coverage for financial losses that are remote but could be substantial. Examples of such losses include contractual disputes, litigation on either the plaintiff or defendant side, permitting or licensure challenges, intellectual property disputes or regulatory and anti-trust issues.

Protecting Deal Value

No amount of due diligence will uncover every risk in a given transaction, and often M&A activity is limited by time and money. Due diligence and representations and warranties insurance are highly complementary. In fact, insurers will not issue RWI policies if the buyer’s customary due diligence is insufficient. By itself, due diligence provides no financial recourse, whereas RWI can supply substantial funds to protect the value of a transaction if unknown issues arise.

The marketplace for RWI is competitive, and insurers in this space are offering broad coverage terms at compelling rates. That means now is a good time for hotel investors to purchase this specialized insurance, reduce deal risks and preserve the value they envision.

Ms. HernandezThis article was co-authored by Cari Hernandez. Ms. Hernandez serves as the Hospitality & Entertainment leader, where she guides clients in the hospitality, gaming, media and live events space. With over 25 years of experience at leading global brokerage firms, she delivers strategic advisory, placement expertise and customized solutions for organizations of all sizes. Ms. Hernandez is known for her deep understanding of industry-specific risks and her ability to structure programs that strike the right balance between risk retention and transfer. She partners closely with clients to align insurance strategy with operation and financial goals, offering clear, actionable guidance through evolving exposures and market conditions. Her expertise spans global program design, risk consulting and innovative approaches to managing volatility in dynamic sectors.   

Mr. Buzen

Jeff Buzen serves as co-head of McGill and Partners' U.S. Representations and Warranties insurance practice. His focus is on structuring insurance solutions for large and complex transactions across the M&A landscape, with particular depth in the financial services and hospitality sectors. Mr. Buzen works closely with PE firms, corporate clients, and their advisors, including legal counsel, investment bankers and consultants, to develop insurance strategies that support deal execution. Known for his practical approach, commercial instincts and deep market knowledge, he brings a strong track record of helping clients use insurance to solve problems, enhance bids, and close deals with greater confidence.

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Payment for the services provided to you in, at, through or in association with HotelExecutive may be made by automatic credit card, debit card, direct debit, bankwire or Paypal and other approved payment means offered in, at, through or in association with HotelExecutive, and you hereby authorize HotelExecutive and its agents to transact such payments on your behalf.

You hereby authorize HotelExecutive's Internet Payment Service Provider to charge your credit card to pay for your membership to HotelExecutive. You further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card for any and all purchases of products, services in association with HotelExecutive. You agree to be personally liable for all charges incurred by you in association with your access or other use of any content provided by HotelExecutive or any third party in association with HotelExecutive. You acknowledge and agree that your liability for all such charges shall continue after termination of your access or any type of membership arrangement with HotelExecutive.

In the event that you have chosen to have your membership automatically rebilled, unless and until you notify HotelExecutive that you wish to cancel or terminate your membership to HotelExecutive, you hereby agree and authorize HotelExecutive's Internet Payment Service Provider to automatically renew your membership to HotelExecutive on a continuing basis and to charge your credit card (or other payment means you have selected) to pay for the ongoing cost of your membership. You hereby further authorize HotelExecutive's Internet Payment Service Provider to charge your credit card (or other approved payment means you have selected) for any and all purchases of products, services and entertainment provided to in, at, through or in association with HotelExecutive.

13. PRIVACY POLICY

The following is the Privacy Policy for HotelExecutive

We can be reached via telephone, email, or online at our contact page. When you visit our site we do not log any information regarding your domain or email address. Information Sharing: We do not share user information with any third parties other than via press release distribution as described below.

Hotel Newswire is a newswire service that distributes press releases on behalf of our users. If you decide to submit a press release for distribution through our system we will transmit your entire press release including any personal information therein contained to our media contacts and online distribution points including search engines. This is the only redistribution of your information that we engage in. Your submission of press releases through our system indicates consent with this policy. The information we collect during your registration process is used to notify users about updates to our service and inform users of any special events hosted by Hotel Newswire. This information is not shared with other organizations for commercial or non-commercial purposes.

Cookies: Our system requires the use of cookies to enable the user to log back into our website to access information from the newswire, without having to log in each time using the required username and password.

If you do not want to receive email from us in the future, please let us know by following instructions included in our communication with you. Users who supply us with telephone numbers online may receive telephone contact from us regarding their account, or informing them of new products and services available on the HotelExecutive website. If you do not wish to receive such telephone calls, please edit your account and remove your phone number from your account profile. This can be done from your user account menu.

Ad Servers: We do not partner with or have any relationship with any ad server companies. From time to time, we may use customer information for new uses not previously disclosed in our privacy notice. If our information practices change at any time, we will post the policy changes to our website to notify you of these changes and provide you with the ability to opt out of these new uses. If you are concerned about how your information is used, you should check back at our website periodically.

Upon request we provide site visitors with access to all information (including proprietary information) that we maintain about them. Users can access this information by logging in to their account.

Security: We always use industry-standard encryption technologies while transferring and receiving user data exchanged with our site. We have appropriate security measures in place in our physical facilities to protect against the loss, misuse, or alteration of information that we have collected from you on our site. We do not store credit card information in our systems.

If you feel that this site is not following its stated information policy, you may contact us.

Robert J. O'Hara III
Ruben Willmarth
Lawrence Adams
Conor Kenny
Julie Farnsworth
Danielle Dudai
Samantha Markiewicz
Kara Freedman
Troy Dixon
Jeff Pedowitz
D. Michael Daniel, Jr.
Mychal Milian
Kai Urban
Coming up in March 1970...