Insuring Your Deal – The rise in Mergers & Acquisitions Insurance

Whether you’re a small manufacturer, you own a chain of shops or you run a FTSE 100 company, merger and acquisition activity can be a risky business. Research just released by large global insurer AIG shows just how risky. In situations where cover was in place, nearly 15% of takeover deals resulted in an insurance claim. It makes you wonder about the costs, management time wasted and general anguish in those situations that weren’t covered.

M&A insurance, or to give it its proper name, Representation and Warranty insurance has been around for some time but hasn’t been widely used until the last few years. With M&A at record levels, 2015 saw ($4.6 trillion of deals) it is perhaps not surprising that Boards are now considering insuring themselves as they take on expensive acquisition work. The majority of cases were brought due to misrepresentation of financial statements either via error or fraud, with stock valuations the next most claimed on area.

In 75% of cases, the report says, the buyer was the purchaser of the insurance. You may think an insured buyer might be less committed to getting the deal done but actually an insured buyer is more attractive to the seller. Why, well typically sellers have to hold back some of the sales proceeds just in case the buyer makes a claim against them. With insurance this is no longer the case and the deal can proceed more swiftly.

If you’re thinking of an acquisition whether small or large, give Business Insurance Service a call on 01273 789 979 to find out how we can help.

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