Many companies continue to acquire other businesses despite the COVID-19 crisis. As the environment remains uncertain, Gallagher has shared tips on how companies can protect themselves from various risks relating to mergers and acquisitions (M&A).
The brokerage giant noted that due diligence helps the buyer make an informed decision by confirming relevant information about the seller, such as customers, finances, contracts, business commitments, insurance information, and details of any legal actions against the company.
It advised companies to consult legal and financial experts specialising in M&A and request documents pertinent to their specialism.
“Thorough due diligence is a core part of managing the risks in a transaction. Prospective buyers should take specialist advice on the steps they need to take to ensure they fully understand the business they are buying,” said Antony Butcher, the national practice leader for M&A insurance services at Gallagher.
“Insurance due diligence is key to obtaining the right insurance cover for the target company going forward, and understanding the cost of risk, that is: not just the premiums, but the cost of self-insured areas.”
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Gallagher also advised companies to take out warranty and indemnity (W&I) insurance to help protect both buyer and seller when undertaking M&A transactions.
“About 30% of W&I insurance policies placed by Gallagher have been notified against, with the majority of warranty breach-related claims made to insurers (instead of seller) related to financial statements as discovered by the buyer 12 to 24 months after a transaction has completed,” Butcher said.
“Warranty and indemnity insurance is increasingly embedded into transactions as a key risk management tool, giving buyers and sellers additional confidence in a transaction. Businesses considering a purchase or sale should contact Gallagher who can help advise on the type of cover that should be considered.”
