Mergers and Acquisitions Insurance
Mergers and acquisitions (M&A) are both transactions in corporate finance, dealing with the buying, selling and combining of separate companies usually with the intention of generating growth within an existing market or expansion into a new market.
A merger is when two companies of similar standing become one entity.
An acquisition is when one company absorbs another via a takeover, either by purchasing shares or acquiring assets.
Merger and Acquisition (M&I) insurance is there to protect companies approaching a merger or an acquisition against all possible liabilities involved in the transaction and covers all issues that may arise from:
- Contractual guarantees
- Ongoing litigation
- A clash of company cultures
- Assets being contrary to originally thought
- The cost of the process being other than planned
- Divergence of resources
- Delays in the merger of acquisitions process
- Inaccuracies in warranties and representations
Merger and acquisition insurance includes warranties and indemnity insurance. Warranty and indemnity insurance covers losses arising from breach of a warranty (or in certain cases under an indemnity) given in connection with an M&A transaction.
- Loss or liability from undisclosed matters and indemnities
- Errors, inaccuracies or omissions not accounted for
- Claims under indemnity provisions (including tax indemnity/covenant), contained in sale and purchase agreements.
In effect, the insurer steps into the shoes of the party that is making the contractual promises. Each policy is tailored to meet the needs of the transaction, supporting rather than replacing the due diligence process.
Mergers and Acquisitions insurance can be purchased by either buyer or seller and geared for specific risks that may otherwise bring transaction negotiations to a standstill.
Advantages for the buyer:
Breaches of representations or warranties for which the seller would have a contractual duty to indemnify the buyer under the terms of the deal – covered.
For the seller:
Claims made by the buyer for the seller’s breach of, or inaccuracy of, a representation or warranty in the transaction agreement – covered.
For both buyer and seller:
Loss arising from a fraudulent transaction or an action by HMRC asserting an invalid tax treatment – both covered.
M&A insurance also:
- Extends the time for representations and warranties, giving buyers more room to spot any problems with the recently purchased business.
- Removes the worry of not being able to collect on a seller’s promised indemnification.
- Speeds up a business sale by covering the liabilities of future representations and warranties claims.
- Allows the buyer to place a distinguishing, lower, stand-out bid during an auction.
- Allows a seller to fully and completely leave a business and any responsibilities, if desired
- Allows the buyer to maintain a good relationship with the seller, who may become the buyer’s employee or business partner after the transaction
Your M&A insurance with Ascend:
- Bespoke cover tailored to your specific M&A transaction, but flexible enough to cover all eventualities.
- Warranties and Indemnities insurance.
- Competitive advantages and negotiation leeway for both buyer and seller.
- A clean exit with no post-transaction claims.
- Bid enhancement.
- Cross-border details with security for both parties.
- Limited seller
- End of Fund Life insurance.
- Pricing made clear and effective.
The question of indemnity caps is a significant issue in M&A transactions. Coverage can provide alternative recourse on a deal, a buyer can accept a lower indemnity cap from a seller, which makes their bid more attractive to the latter.
Different indemnification expectations on cross-border deals can lead to widely differing requirements for buyers and sellers. Having a R&W insurance policy provides security for either party.
Companies located in overseas jurisdictions may not offer a buyer sufficient security for post-indemnification claims. Our policies offers access to stable and high quality capital recourse.
Frequently Asked Questions
M&A insurance is highly specialised cover that facilitates the smooth progression of a merger or acquisition by transferring transaction risks to an insurance policy.
M&A insurance allows you to decrease your risk and protect your current and future assets against known or unknown pitfalls associated with your transaction.
Warranties and Indemnities Insurance transfers the risk of breaches of warranty from the seller or the buyer to the insurer.
End of Fund Life enables fund managers to ensure a clean exit, maximise returns and operate an efficient final distribution following a merger or acquisition.
The cost of M&A insurance will depend on a number of factors including the nature of your business, how much work you undertake annually and whether you have previously had any claims made against you.
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Who to speak to?
Matthew’s contact details can be found below or, if you would prefer, please complete the contact form at the bottom of this page and Matthew will contact you at your convenience.
Matthew.firstname.lastname@example.org | Office: 01245 449061 | Mobile: 07901 551965