Insurers are looking at new ways to cover businesses for known and unknown risks involved in mergers and acquisitions (M&A) after a boom in transactions (locally and globally) influenced by the business and economic impacts of the COVID-19 pandemic.
Brokerage giant Gallagher expects considerable M&A activity to continue in 2021, particularly distressed deals and those involving “founder” or family-owned private companies that were triggered into selling out.
Antony Butcher, the national practice leader for M&A insurance services at Gallagher, warned that M&A deals could be increasingly nuanced and trickier than in recent years.
“Businesses need to ensure they're covered for the unknown risks as well as the known risks, which warranty and indemnity insurance (W&I) typically covers,” Butcher said.
“In an environment of distressed sales, insolvency specialists and administrators may be involved – and getting full visibility of everything you need to satisfy a deal can be challenging.”
Butcher emphasised that the M&A landscape is evolving and insurers are innovating to ensure they have the right tools to finish deals.
“An increasing number of tax professionals are joining insurers to work on M&A, and this has helped lower some costs as risks are better understood,” he said.
“Clients are also driving innovation – for example, buyers in an auction process are proactively taking insurance out against a known tax risk or pending dispute or litigation risk to take an issue off the table immediately rather than entering protracted negotiations with the seller. Sellers, meanwhile, are taking out insurance to take issues off the table before a deal's even gone to market.”
