Global Mergers & Acquisitions (M&A) activity is up 48% in Q1 2021 and similar trends are being seen in the UK, where tech industry M&A activity is up 28% in the first quarter of 2021, compared to the same period in 2020, according to figures from ICON Corporate Finance Limited.
Business acquisitions and sales are typically complex transactions, taking place in a world that can be both fraudulent and, especially since the pandemic, complicated with financial uncertainty. Many acquisitions or mergers are time-critical, and issues may only emerge once the sale has gone through, or after the contract has been signed.
Financial service advisers, such as M&A specialist firms or accountants, who might be asked to provide advice on an acquisition or sale, need their own Professional Indemnity insurance but are well-advised to recommend that clients have their own Warranty & Indemnity (W&I) insurance in place.
This type of insurance helps to reduce the risk within the transaction and can provide protection for a period of time into the future after a business sale or merger has taken place. The insurance helps protect one of the parties, should a statement of fact about the business being sold or acquired prove to be untrue or lead to financial damage.
Having such insurance in place means that a buyer of a company does not have to try to seek compensation from the seller, at some point in the future. Success in getting such compensation would rely on the seller having the funds available to pay or, indeed, being traceable.
A buyer’s purchase of Warranty & Indemnity insurance can also assist in the bidding process, as it signals that the seller’s risk would be reduced, if selling to that buyer. This can also provide greater confidence to any lenders involved, who are helping the buyer with their purchase. There is also a very clean and supported exit for the seller, with risks removed from their balance sheet.
Other types of insurance policy can also protect the parties involved in mergers and acquisitions, with these including Tax Liability Insurance. Here, the insurance company, through the insurance policy, takes on any known but uncertain tax liability from a company’s balance sheet.
Making mistakes within a merger or acquisition can be costly, so it is crucial for all parties involved to have the right protection in place. In this regard, we are ideally placed to assist you, having access to the major markets, nationally and internationally, and strategic relationships with insurers that serve the M&A insurance markets.
If you need to find a specialist M&A insurance broker who can negotiate and arrange the optimum Warranty & Indemnity insurance policy for your needs, please get in touch.