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Protecting both vendors and purchasers, Merger and Acquisitions solutions facilitate deals by removing obstacles to the sale, providing comprehensive protection to the businesses and their directors from unwanted and unexpected liabilities that may appear before, during and after the transaction. Some Areas of protection that can be provided are as follows:
Warranty and indemnity Insurance
Purchasers of a business can protect their investment with warranties in the sale agreement and requests for specific indemnities. However, how do you protect against the possibility of credit risk or fraud on the part of the vendor?
A purchaser may offer a lower price or hold back some of the consideration in escrow, to cover possible breach of warranty claims, or may call on an indemnity which may be a deal breaker to the vendor.
Cover is available for protection against non performance of general or specific warranties entered into during sales and purchase or asset sale agreement.
Liability Buy Out
This can provide clients with a lower cost of risk, and an improved balance sheet. A buyout can be structured for traditional multi year liabilities, captives that are being shut down or run off or unique M & A related risks. A buyout can be structured for non traditional liabilities, including complex environmental, life related and market misconduct matters. It is a useful tool in relation to large long tail liabilities that can deter potential purchasers or create difficulties during price negotiations. The use of Insurance capital is focused on cash flow volatility and resultant reductions which flow from releasing security.
Litigation Transfer or Cap
Differences between vendors or purchasers estimates of eventual settlement of ongoing litigation can vary enormously. Such an obstacle can be removed or capped with Insurance capital.
The pricing differentials are resolved by ring fencing the litigation and transferring it to insurers who have extensive litigation experience. This leaves the purchaser free to progress with certainty and concentrate fully on running the acquired business.
Tax Opinion Liability Insurance
Tax opinion Insurance can assist a company in reducing or eliminating loss from a contingent tax liability arising from a successful challenge of a company’s tax treatment of a transaction or investment. The feasibility of many corporate transactions can depend on specific tax treatment. Subsequent rulings against specific tax treatments can adversely affect the models on which the transactions were built.
Vendors and Purchasers can use this insurance – Vendors to ringfence liabilities contingent upon adverse tax rulings and make themselves more attractive. Purchasers can use it to remove the inheritance of liabilities with the acquisition of the target company.
Environmental liabilities have become highly visible issues on M & A transactions with the advent of strict national and international regulations, increased corporate governance and financial disclosure expectations and advanced environmental awareness. Insurance company professionals together with environmental engineers, consultants and underwriters can quantify and address the otherwise “deal breaking” uncertainty of environmental issues arising in sale negotiations.
When a private equity and venture capital company invests in a portfolio company, they will assess all the risks that may affect the value of their investment and manage or mitigate as many of the risks as possible, as the investment is made.
If these risks materialise or deteriorate, it will have a negative impact on the profitability of that investment, or possibly the continuity of that company.
Portfolio programmes can be structured for a private equity company to provide risk management structure to cover single or multiple insurable risks in one overall programme. This provides security and comfort to the private equity firm that a suitable insurance programme is in place for all companies, which can provide economies of scale, risk management advice and ultimate protection when needed.