M&A Insurance – How To Prepare For A Merger Or Acquisition
7 Elements Of A M&A Insurance ReviewWhen a company decides to merge or acquire another, careful due diligence is just one of multiple elements to consider. Both parties involved in a merger or acquisition should also review and update their insurance coverages to ensure all risks are accounted for. An insurance review can help to avoid surprise liabilities after a merger or acquisition transaction.
- Ensure the seller’s existing policies have sufficient limits and adequate coverage for all risks.
- Review the seller’s claims history and existing policies and determine if any potential liabilities are not insured.
- Note the seller’s existing contracts guaranteeing indemnification, or agreeing to additional insured status for suppliers, customers or corporate affiliates of the seller.
- Review existing contracts to look for any indemnities or insurance that may have been presented to the seller from other parties.
- Pinpoint new exposures that could pop up if operations are added or moved to locations unfamiliar to your company. New coverages may need to be purchased or old policies may need to be updated to make sure these operations are covered.
- Address any circumstances or conditions that could generate claims that would fall under the seller’s coverage.
- Address any differences in the way the seller reported claims with the way the buyer reports claims.
Additional uncovered liabilities are often discovered in the due diligence process, and the purchase price can be adjusted accordingly or the buyer granted applicable indemnification.
Representations and Warranties Insurance
During a merger or acquisition, certain discrepancies may appear in the way each company has represented itself. These inaccuracies could cause significant liabilities after closing, and those liabilities may not be covered by general liability policies. If indemnification hasn’t been promised, specialty insurance should be considered to cover these potential risks. Representations and warranties insurance protects buyers and sellers of a company against any inaccuracies made in representations and warranties as well as:
- Extending the time for representations and warranties, which gives buyers more room to spot any existing problems with the recently purchased business
- Removing the worry of not being able to collect on a seller’s promised indemnification
- Speeding up a business sale by covering the liabilities of future representations and warranties claims
- During an auction, allowing the buyer to place a distinguishing, lower, stand-out bid
- Allowing a seller to fully and completely leave a business, if desired
- Allowing the buyer to maintain a good relationship with the seller, who may become the buyer’s employee or business partner after the transaction
Protect Your Investment With M&A Insurance
To learn more about M&A insurance options from AIG, talk to an ALIGNED advocate today about how we can help you secure the best products, services and solutions for your business. Wherever you are located, we can help you get a mergers and acquisitions insurance quote that delivers more value and options to your Canadian business.
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Sources: www.aig.ca Adapted from Coverage Insights © 2014 Zywave, Inc. All rights reserved. This Coverage Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.