The Surety Bond market has been gaining traction in Brazil. In 2025, the segment generated BRL 6.29 billion in premiums, considering guarantees for both public and private sectors, representing a 23.8% increase compared to the previous year, according to data from the Superintendence of Private Insurance (Susep). This growth reflects the increasingly strategic use of this instrument, which is beginning to extend beyond its more traditional applications, such as public tenders, construction contracts, and judicial guarantees.

One of these emerging applications is in mergers and acquisitions (M&A) transactions, particularly when part of the purchase price of a company is paid in installments over several years.

In such transactions, bank guarantees are often among the first alternatives considered to assure sellers that future installments will be paid. What many companies still do not realize is that a Surety Bond can serve the same purpose and, depending on the characteristics of the transaction, offer advantages in structuring the deal.

“Surety Bonds are still rarely associated with M&A transactions, but they can play a significant role when the purchase price is paid in installments. Beyond providing security to the seller, the guarantee can help create a structure that balances the needs of both parties and enables the transaction to move forward,” says Carolina Pirajá, Insurance and Corporate Risk Management Executive and New Business Partner at Horiens.

According to Matheus Chammas, Director of Surety, Credit and Political Risk at Horiens, the bond can play a strategic role in the transaction structure itself.

“In an M&A transaction, a guarantee should not be viewed solely as protection against a potential default. When structured from the beginning of negotiations, it can expand the available payment alternatives and help align the interests of buyer and seller.”

Protection for the Seller and Financial Flexibility for the Buyer

A Surety Bond is intended to guarantee the fulfillment of an obligation assumed by the policyholder toward the insured party. In an acquisition transaction with installment payments, the policy can therefore guarantee the seller that the buyer will fulfill its payment obligations.

Insurance companies, like banks, are highly regulated institutions with the financial capacity to support the risks they assume. In Brazil, the insurance industry is regulated and supervised by Susep, and Surety Bonds are governed by specific regulations established by Susep Circular No. 662/2022, which addresses everything from the characterization of the guaranteed obligation to claims settlement procedures.

For sellers, the main advantage is greater certainty regarding the receipt of future payments. For buyers, there is a significant financial benefit: unlike bank guarantees in many situations, a Surety Bond generally does not consume existing credit limits with financial institutions. This allows buyers to preserve borrowing capacity for financing the transaction, investing in expansion, or pursuing additional acquisitions.

Although insurers may require counter-guarantees from the buyer’s group, such as corporate guarantees or fiduciary collateral, these arrangements typically do not affect their banking debt capacity.

Depending on the buyer’s credit profile and the characteristics of the transaction, costs may also be competitive when compared to bank guarantees.

Another important benefit is that Surety Bonds can bridge differing expectations regarding payment structures. When a seller prefers immediate payment while a buyer needs to spread payments over time, a solid guarantee can provide confidence in future payments and bring the parties closer together.

Rather than merely protecting the seller, the instrument expands the range of possible payment structures and can directly help unlock negotiations.

Surety Bonds may also complement traditional M&A mechanisms such as escrow accounts, holdbacks, and earn-outs. In some structures, they may replace or reduce the need to immobilize funds.

“An escrow account, for example, requires funds to remain deposited and unavailable during a specified period. In transactions involving installment payments, a Surety Bond can provide similar protection while freeing up the buyer’s capital,” explains Matheus.

Another differentiating factor is the insurer’s underwriting process. Before issuing the policy, insurers evaluate financial statements, capital structure, indebtedness, cash generation, governance practices, and projections of the buyer’s payment capacity and business continuity throughout the guaranteed period.

An insurer will only put its balance sheet behind a transaction if it concludes that the risk is acceptable. As a result, issuing the policy effectively becomes an additional independent assessment of the buyer’s credit quality.

While this evaluation does not replace the due diligence conducted by the seller and its advisors, it adds another layer of analysis performed by an institution with a direct financial interest in properly assessing the risk being assumed. This can provide additional comfort to sellers when a significant portion of the purchase price remains subject to future payments.

The existence of the insurance policy also tends to support contractual discipline throughout the life of the agreement, as the insurer monitors risk evolution during the guarantee period and the buyer must comply with the conditions established in both the policy and the underlying contract.

A Sophisticated Structure That Begins Before the Contract

Despite its potential, guaranteeing payment obligations in M&A transactions remains a highly specialized application of Surety Bonds in the Brazilian market.

Only a limited number of insurers have the appetite for this type of risk. Unlike performance bonds, where the risk relates to fulfilling an obligation to perform work or deliver goods, insurers here assume a fundamentally financial risk: the non-payment of an obligation.

In addition, installment payment structures in M&A transactions may involve terms of three to five years, or even longer, while sellers typically seek highly liquid guarantees that can be enforced quickly. This combination of financial risk, long-term exposure, and enforcement expectations limits the number of insurers willing and capable of supporting such transactions.

One of the most sensitive issues concerns the nature of the guarantee itself. Sellers accustomed to bank guarantees may seek a first-demand guarantee, executable upon request without prior proof of default. By nature, however, Surety Bonds are generally structured as conditional guarantees linked to proof of default.

This is why policy wording becomes critically important. The challenge is to preserve the liquidity and protection expected by the seller without creating conditions that conflict with insurers’ underwriting criteria.

“An extremely protective clause for one party loses its effectiveness if no insurer is willing to accept it in practice. For that reason, the feasibility of the guarantee must be considered while the transaction is still being designed, not only after the contract has been finalized,” explains Carolina.

Details related to the obligation term, default triggers, guarantee enforcement procedures, acceleration events, indemnification conditions, and even the wording of the guaranteed obligations themselves may determine whether policy issuance is feasible.

The Role of the Insurance Advisor in Structuring the Transaction

For this reason, the insurance advisor’s work begins even before quotes are requested from the insurance market.

Even during the pre-term sheet stage, it is possible to assess the feasibility of the guarantee and the available alternatives. During contract negotiations, advisors can help structure guarantee provisions while balancing the legal and commercial interests of both buyer and seller, as well as insurers’ underwriting requirements.

The advisor then manages submissions to insurers and oversees the credit analysis process through policy issuance. Following closing, the advisor continues to monitor the guarantee throughout its validity period and the compliance with agreed conditions.

This involvement throughout the entire process reduces the risk that a transaction already at an advanced stage will need to be renegotiated because the guarantee originally contemplated in the contract proves unacceptable to the insurance market.

For sellers, this increases the likelihood of actually obtaining a valid guarantee securing future installment payments. For buyers, it reduces the risk of last-minute renegotiations or the need to replace the originally planned guarantee structure, helping preserve the transaction timetable.

In this context, technical expertise and strong relationships with insurers become particularly important, since the number of insurance companies willing to assume this type of risk remains limited.

It is also important to distinguish payment Surety Bonds from another insurance product frequently used in M&A transactions: Representations and Warranties Insurance (RWI). While RWI protects against breaches of representations and warranties made in the purchase agreement, the Surety Bond discussed here guarantees payment of the purchase price. They are therefore distinct instruments that may complement one another.

“When properly structured, a Surety Bond becomes more than an alternative to a bank guarantee. It can provide greater legal certainty for the parties, add an independent credit assessment, preserve the buyer’s financial capacity, and expand payment structuring possibilities,” emphasizes Carolina.

“In certain transactions, these characteristics can make the guarantee not only a protection mechanism for a deal that has already been agreed, but also an instrument that helps make the transaction possible,” adds Matheus.