07 October 2026
Aerospace M&A is taking off Understand the growing role of Warranty and Indemnity Insurance
The aviation and aerospace industry has consistently attracted significant merger and acquisition activity, creating a vibrant and dynamic market that continues to present compelling investment opportunities. Industry deal databases indicate that the European aerospace and defence sector has experienced roughly 50-65 M&A transactions annually since 2023, implying around 150-190 transactions over the past three years, driven by defence spending increases, supply-chain consolidation, and strategic capability acquisitions.
The aerospace sector is experiencing a new wave of investment activity. From aircraft maintenance providers and component manufacturers to defence technology firms, satellite businesses and aviation software companies, investors continue to be drawn to the sector's long-term growth opportunities.
At the same time, transactions are becoming increasingly complex.
Highly regulated operating environments, intricate global supply chains, export controls, intellectual property considerations and long-term contractual obligations can all create challenges when buyers and sellers attempt to agree how risk should be allocated after a deal completes.
As a result, transactional risk insurance has become an increasingly important tool in facilitating successful transactions. While Tax Liability Insurance (TLI) protects against identified tax risks, Warranty & Indemnity (W&I) Insurance has emerged as one of the most widely used solutions for managing unknown transaction risks and improving deal certainty.
From specialist product to market standard
Over the past decade, W&I Insurance has evolved from a niche product into a widely used solution for many private equity, corporate and cross-border transactions.
At the same time, the transactional insurance market has matured significantly. Increased insurer competition has led to broader coverage, greater flexibility and lower pricing, making W&I Insurance accessible for a much wider range of transactions than ever before.
Today, understanding W&I Insurance is no longer a ‘nice-to-have’. For many deal professionals, it has become a 'need-to-know’.
What is W&I Insurance?
Warranty & Indemnity Insurance protects against financial losses arising from breaches of warranties or claims under a tax covenant contained within a Sale and Purchase Agreement (SPA).
In simple terms, if an issue emerges after completion that should have been covered by the seller's warranties, the buyer may be able to recover losses directly from the insurer rather than pursuing the seller.
While the policy is most commonly purchased by the buyer, the process is often initiated by sellers seeking a cleaner exit and reduced ongoing liability.
The result is a transaction structure that can benefit both parties:
- Buyers receive enhanced protection against unforeseen issues.
- Sellers achieve greater certainty and limit post-completion exposure.
- Both parties can negotiate more efficiently, reducing friction during the deal process.
Why is W&I particularly relevant in aerospace transactions?
Few industries combine technical complexity and regulatory scrutiny quite like aerospace.
Whether a transaction involves an aircraft lessor, MRO provider, aerospace manufacturer or defence contractor, buyers are often assessing businesses that operate under strict regulatory frameworks and highly specialised commercial arrangements.
Potential exposures may include:
- Product liability risks
- Regulatory and certification compliance
- Defence contracts and security considerations
- Export control requirements
- Intellectual property ownership and protection
- Long-term customer agreements
- Global manufacturing and supply chain dependencies
Even with comprehensive due diligence, not every issue can be identified before completion. W&I Insurance provides an additional layer of protection against unknown warranty breaches that only become apparent after the transaction has closed.
In some cases, where sellers negotiate liability caps as low as GBP 1, W&I Insurance may represent the buyer's primary source of recovery.
Benefits for buyers
For buyers, W&I Insurance has become a powerful tool for both risk management and competitive advantage.
Key benefits include:
- Enhanced Recoverability: Where sellers seek to minimise post-completion liability, W&I Insurance can provide meaningful recourse in the event of a warranty breach.
- Protection Against Unknown Risks: The policy responds to issues that were not identified during due diligence or disclosed before completion.
- Stronger Auction Position: Buyers can often submit more attractive bids by reducing warranty demands and offering sellers a cleaner exit route.
- Preservation of Relationships: Where management teams remain involved after the transaction, W&I Insurance can help avoid future disputes between buyers and management shareholders.
- Additional Transaction Scrutiny: The underwriting process provides another layer of review, as insurers carefully assess due diligence findings before assuming risk.
Benefits for sellers
For sellers, particularly private equity sponsors and founder-led businesses, W&I Insurance has become an effective way to achieve transaction certainty and maximise value.
Benefits include:
- Limiting ongoing liability under the SPA
- Protecting management teams that remain with the business
- Reducing or eliminating escrow and retention requirements
- Accelerating distributions of sale proceeds
- Increasing buyer confidence and deal certainty
In highly competitive sale processes, these advantages can be particularly valuable.
The Critical Role of Due Diligence
One of the most common misconceptions surrounding W&I Insurance is that it can replace due diligence. It cannot. Insurers expect buyers to undertake robust and comprehensive diligence across all material areas of the target business. In fact, the breadth and quality of the due diligence programme can have a direct impact on the scope of coverage available.
A simple rule of thumb applies: No due diligence generally means no insurance cover.
What are insurers looking for?
Gallagher's W&I specialists recently engaged with several leading insurers to understand where they expect diligence efforts to be focused within key aerospace subsectors.
Key features of a typical W&I policy
The examples below are illustrative only. As each transaction is different and depends on a variety of factors, the features of a typical W&I policy may include:
- Policy Limits: Typically, between 10% and 30% of enterprise value, although higher or lower limits can be arranged depending on the transaction.
- Premiums: Usually between 0.7% and 2.0% of the insurance limit purchased, depending on factors such as deal size, jurisdiction, sector and due diligence quality.
- Retention: Commonly between 0.25% and 1.0% of enterprise value on larger transactions, often reducing over time.
- Coverage Periods: Business warranties: Generally, 2 to 3 years / Tax warranties and tax covenant: Typically, 7 years
- Clean Exit Structure: Helps minimise escrow requirements and ongoing warranty exposure.
- Unknown Risks Only: Coverage is designed for unknown warranty breaches. Matters already identified, disclosed or known by the buyer are typically excluded.
How Gallagher can help
As investment activity across aerospace, aviation, defence and space continues to accelerate, buyers and sellers are increasingly looking for practical ways to allocate risk without compromising deal momentum.
W&I Insurance has become an increasingly used tool to support that objective.
By helping bridge negotiating gaps, facilitating cleaner exits and providing additional confidence around post-completion risks, W&I Insurance is now playing a central role in modern aerospace transactions.
For businesses considering an acquisition, disposal, investment or restructuring, understanding the role of transactional risk insurance is becoming just as important as understanding the commercial opportunity itself.
Whether the challenge involves an identified tax exposure, a complex cross-border acquisition, an aerospace manufacturing business, an MRO operation or an aviation technology investment, engaging early can help improve deal certainty, streamline negotiations and support more efficient risk allocation.
It is vital to engage as early as practicable as a potential transaction starts to take shape to support the transacting parties' appreciation of the risk and insurance options available.
In an industry where precision matters, protecting transaction value is no different.
At Gallagher, we offer bespoke insurance solutions from a dedicated multidisciplinary team to address risks associated with M&A transactions. Gallagher's Aerospace and Private Equity & M&A teams work closely together to help clients identify, quantify and transfer transaction-related risks through tailored insurance solutions.
We are keen to discuss your M&A insurance needs with you, and the specialist team will be happy to arrange an exploratory meeting to support you. Please contact your Gallagher Aerospace account executive or the contact team shown opposite.
We very much look forward to working with you to address your horizon of M&A risk.
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