Mergers and acquisitions (M&A) are both aspects of corporate strategy dealing with the buying, selling and combining of separate companies with the intention of generating growth within an existing market or expansion into a new market without having to create and develop a new entity from the ground up or enter into a joint venture.
An M&A deal is considered successful when both parties emerge from the negotiations having created value to their shareholders, whilst understanding and allocating any potential risks and benefits. In order to achieve such a result, the parties must identify the aspects of the business that are important to them from an operational and valuation perspective. Once identified, these will form the backbone of the agreement
between the parties.
The reasons behind M&A activity vary widely. Common rationales include seeking economies of scale and distribution, enhancing value through combining businesses, increasing market share through the acquisition of competitors and optimizing corporate and tax structures.
M&A insurance is a highly specialized field of cover that facilitates the smooth running of the M&A process. It does so by transferring certain potential risks of the transaction (whether already foreseen or which may surface at a later date) to an insurance policy. M&A insurance can also enable sellers to realize the benefits of the transaction sooner by avoiding the need for a retention or an escrow account. This is particularly useful for managed funds that need to return funds to their investors, but has the potential for a significant time-value gain for any seller.
AIG's Mergers and Acquisitions Insurance is suitable for any company considering a merger, acquisition or restructure.
AIG offers a range of bespoke M&A insurance products, specifically designed to solve commercial risks arising from M&A transactions. AIG’s highly specialized M&A insurance products are underwritten by an international team of skilled insurance and M&A professionals who integrate closely with negotiating parties and their advisers to create tailored solutions that can facilitate commercial objectives whilst minimizing deal risk.
More detailed description of each M&A insurance product can be found below.
Warranty & Indemnity (W&I) Insurance is a tailored product from AIG Europe’s M&A team which covers either the buyer or (less commonly) the seller for loss arising from breach of the warranties and indemnities given in an acquisition agreement (SPA).
Sellers can obtain a clean exit by using W&I Insurance to ensure that the sale proceeds can be returned to investors and avoid the need of an escrow account.
Buyers can procure warranty protection on transactions where the seller is reluctant to give warranties or where there is doubt over the seller’s ability to satisfy a claim.
Features & Benefits
W&I Insurance enables buyers to:
W&I Insurance enables sellers to:
The W&I Insurance, whether seller-side or buyer-side, will indemnify the insured party for loss resulting from a breach of a seller warranty in an SPA or breach of the seller’s obligations in a tax deed of covenant.
Tax Liability Insurance from AIG can reduce or eliminate a loss arising from the successful challenge by a tax authority of a taxpayer’s position. Potential tax risks are typically identified during due diligence pursuant to a potential acquisition of a company and may have lied dormant within a target for many years.
A buyer may have to proceed with a transaction or investment where there is uncertainty in the application of tax law or inadequate time to obtain an advance tax ruling. The risk for the buyer is that the tax position of the target could be challenged by a tax authority, which could lead to a material reassessment of the liability for tax and could include interest, fines and penalties. Similar issues could arise where a group is rationalizing its or its target’s corporate structure either pre or post an M&A transaction.
Features & Benefits
Bespoke Tax Liability Insurance can also address:
Litigation Buyout Insurance (LBI) is a tailored insurance product from AIG Europe’s M&A team that quarantines a client from the uncertainties inherent in outstanding litigation whether those uncertainties relate to the outcome or to the eventual amount of damages awarded. LBI will either cap an insured’s financial exposure or remove it altogether and will be designed to meet the particular needs of the insured and the specific characteristics of the dispute.
LBI enables clients to ring-fence liabilities that may arise from any current or anticipated litigation, arbitration or other dispute. This may be particularly useful in an M&A context where an unresolved dispute would otherwise prevent an acquisition proceeding or would have a significant impact on the purchase price. LBI can transform the inherently uncertain liability of litigation into a quantifiable insurance cost which can enable the parties to the transaction to focus on the business being acquired.
Underwriting and cover are tailored to each case, allowing the policy to be adapted to a dispute, regardless of its subject matter. As such, LBI can be adapted to cover proceedings ranging from a simple breach of a supply contract, or a more complicated employment issue, through to highly complex securities litigation and intellectual property disputes.
Features & Benefits
AIG has a dedicated claims team in every jurisdiction where we issue policies. This means that any claim made under an M&A policy will be dealt with by an experienced member of our claims team who has particular expertise in dealing with claims in the jurisdiction of the insured.
The local claims handler works closely with the underwriting team to provide a uniquely efficient claims handling process that is tailored to respond appropriately to the complexities of any claim.
This material is for the purposes of information only. Full coverage details will be available in the policy documentation.