For an M&A deal to be successful, you need to dare to take risks !
A true expert in the management of M&A-related risks, we will discretely help you optimise your risk-taking.
A policy insuring against the risks related to an M&A transaction has the effect of transferring certain risks, especially those associated with Warranties and Indemnities, to an insurance company. In other words, its aim is to protect the seller or buyer of a company against any financial losses resulting from an inaccurate declaration or warranty specified in a sale and purchase agreement (SPA).
We call this a Warranty & Indemnity Insurance.
The policy covering the transaction risks provides coverage for possible breaches of the contract agreed between the two parties. This gives sellers the possibility of limiting their exposure to a financial risk. As for the buyers, they can use this insurance to protect their investment against unexpected financial losses, giving them adequate remedy in the event of any problems arising after the transaction is finalized.
The scope of the M&A Warranty policy must be considered before and during negotiations, with the risks being jointly agreed by the two parties.
An insurance policy facilitating merger and acquisition (M&A) operations
Insuring transactional risks helps reconcile different points of view possibly existing between the two parties. We are finding that more and more sellers wanting a “clean exit” are demanding that buyers have a Warranty Insurance.
This M&A transaction insurance offers various benefits :
• It facilitates M&A activities by transferring risks to an insurance. • It facilitates the sharing of liability between the two partiesbr>• It improves the price for one or both parties.
• It boosts certainty that the operation will be successfully completed.
Warranty Insurance covers the unknown risks arising from possible flaws in a sale and purchase agreement (SPA). Other types of insurance against M&A risks are also foreseeable in the case of identified risks (fiscal or environmental).
The different types of M&A insurance
• Seller-Side Warranty Insurance : this insurance protects the seller from a default of the buyer’s financial liability in the case of a dispute.
• Buyer-Side Warranty Insurance : this insurance protects the buyer against any financial losses arising from inaccurate declarations or warranties stipulated by the seller (financial situation, tax information, contracts, work incapacity, staff, etc.).
What are the key parameters of Warranty & Indemnity Insurance?
• The policy period) : this matches the SPA time limitation, i.e. in most cases a maximum of 7 years, though the policy may be renewed.
• The premium : ebetween 1 and 2% of the amount insured – a one-off premium, payable when the policy takes effect.
• Time schedule : 2 to 3 days to submit a letter of intention, approximately 8 to 10 days to come up with a price offer.
Tolrip’s added value
• Personal handling of the file
• Optimal execution