Mergers and acquisitions insurance

W&I is a tailored product covering losses arising from breaches of the sale purchase agreement (SPA). Policies replace fundamental warranties, transferring post-closing risks onto the insurance market.

Sellers can use W&I to cap their liabilities, allowing the swift return of funds to investors, and avoiding the need for an escrow. For buyers, a policy is useful where a seller is unable or unwilling to provide warranties, such as administration or a fund wind-up.

Key benefits for buyers:

• Supplement protection from warranty breaches
• Extend the duration and scope of warranties beyond the SPA
• Increase the attractiveness of a bid
• Protect relationships with the seller

Key benefits for sellers:

• Lower the risk of post-closing liabilities, facilitating a clean exit
• Reduce the need to place funds in escrow
• Distribute funds to investors and clear debts
• Speed up the sales process

When transaction parties disagree on the potential impact of a risk liabilities identified during due diligence, a specific risk policy can ring-fence the issue, providing certainty of costs if the risk crystalises.

Common risks covered include:

• Litigation
• Intellectual property
• Employment matters
• Product liabilities
• Antitrust exposures
• Securities and other class actions

Key benefits:

• Transfers an uncertain liability onto the insurance market
• Covers the cost of defending legal disputes, including legal costs and damages
• Brings balance sheet clarity by transforming uncertain claims into a quantifiable insurance premium
• Unlocks deals by removing potential roadblocks

Tax liability insurance covers losses arising from a successful challenge by a tax authority.

Typically, coverage is sought when the application of tax law is uncertain, or where there’s insufficient time to obtain a tax ruling. Tax liability insurance transfers the risk onto the insurance market, removing the issue from negotiations.

Key benefits for buyers:

• Transforms uncertain claims costs into a quantifiable insurance premium, providing balance sheet clarity
• Facilitates financing and investment
• Protects against potential fines, penalties, and accrued interest
• Removes the need for guidance from the relevant tax authority before completing

Key benefits for sellers:

• Helps to achieve a clean exit
• Reduces the need to hold funds in escrow
• Expedites the due diligence process
• Prevents price-chipping over identified tax liabilities

Excess coverage is important for high-value M&A transactions, sitting above an existing W&I programme. Policies follow the W&I format, offering seamless integration with the underlying insurance structure.

Key benefits:

• Cover 100% of the enterprise value, reducing gaps in coverage
• Provides additional W&I coverage without having to seek a new policy
• Coverage is typically more cost-effective compared with negotiating a separate policy

Title to shares insurance protects against financial losses arising from post-closing claims. Coverage is available for both contingent liabilities and a wide range of unknown matters.

Policies are generally designed to interact with an existing W&I programme to insure the full value of the target. However, we are comfortable building standalone policies from the ground up.

Key benefits and features:

• Cover 100% of the EV, subject to capacity limits
• Active coverage throughout the period of ownership
• Expands cover beyond the limits and scope of the SPA
• Mitigate against both known and unknown risks
• Typical premiums between 0.15% and 0.5% of the asset value