Merger and Acquisition Insurance 101
Through the mergers and acquisitions process, two companies become a single entity. During mergers and acquisitions negotiations, certain discrepancies or concerns may arise in the way each company has represented itself.
Mergers and Acquisitions Risk Management
To make sure your company is not blindsided by surprise liabilities after the merger or acquisition transaction, it is encouraged to consider the following prior to closing the deal:
- Ensure all of the seller’s existing insurance policies have sufficient limits and adequate coverage for its main risks.
- Determine whether the seller has any potential liabilities that are not insured.
- Take note of the seller’s existing third-party contracts, guarantees, Indemnities and agreements.
- Address any circumstances or conditions that could generate claims if operations are added or moved to locations unfamiliar to your company.
- Address any differences in the way the seller reported claims with the way the buyer reports claims.
- Review change of control provisions in-bedded in various types of insurance policies to ensure the transaction doesn’t automatically trigger the cancellation of insurance coverage.
Additional uncovered liabilities are often discovered in the merger and acquisition due diligence process, and the purchase price can be adjusted accordingly or the buyer granted applicable indemnification which is why merger insurance should also be considered.
Representations and Warranties Insurance aka Merger and Acquisition Insurance 101
Representations and warranties/ Merger and Acquisition Insurance protects buyers and sellers of a company against any inaccuracies made in representations and warranties during mergers and acquisitions. Some advantages of merger and acquisition insurance are as follows:
- Extends the time for representations and warranties /merger and acquisition insurance, which gives buyers more room to spot any existing problems with the recently purchased business
- Merger and acquisition insurance removes the worry of not being able to collect on a seller’s promised indemnification
- Merger and acquisition insurance can speed up a business sale by covering the liabilities of future representations and warranties claims
- During an auction, having merger and acquisition insurance can allow the buyer to place a distinguishing, lower, stand-out bid
- Having merger and acquisition insurance can allow a seller to fully and completely leave a business and any responsibilities, if desired
- Merger and acquisition insurance can allow the buyer to maintain a good relationship with the seller, who may become the buyer’s employee or business partner after the transaction
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