Mergers & Acquisitions

Mergers & Acquisitions

Seeing the iceberg

below the water line

Seeing the iceberg

below the water line

Remove the uncertainty

To take advantage of merger and acquisition opportunities, you must be mindful of potential risks that could alter the terms or even derail a deal. HDL’s risk and insurance due diligence services help to address transaction issues, enhance negotiating position, and improve deal certainty.

To take advantage of merger and acquisition opportunities, business leaders must be mindful of potential risks that could alter the terms or even derail a deal. Through our risk and insurance due diligence services HDL can help address transaction issues, enhance your negotiating position, and improve deal certainty.

Remove the uncertainty

What is Mergers and Acquisitions (M&A) Insurance ?

M&A Insurance, or Transactional Risk Insurance, is a set of protections designed to help both buyers and sellers mitigate risk and facilitate the closing of a deal. 

Transactions can be time critical and may leave you with unforeseen risks post completion. HDL are able to provide M&A insurance solutions to remove obstacles, which can delay or even derail deals from being completed.

For instance, buyers and sellers are often concerned about how contractual guarantees, taxes, or ongoing litigation might impact a merger or acquisition and where negotiations between the buyer and seller are unable to resolve such obstacles, a warranty and indemnity insurance solution may break the deadlock.

Key M&A insurance solutions available include:

Warranty and Indemnity Insurance

  • Indemnifies the insured for financial loss for a breach of warranty or the tax indemnity in an M&A transaction.
  • Covers loss or liability arising from unknown or undisclosed matters only.
  • Can be purchased by either a buyer or a seller.

Tax Liability Insurance

  • Transfers a known or uncertain tax liability from the insured’s balance sheet to an insurer.
  • The insurer will indemnify the insured for financial loss arising from a challenge from a tax authority.
  • Available both pre or post M&A transaction (or on a standalone basis).

Contingent Risk Insurance

  • Covers identified or known contingent risks which are typically the subject of a specific indemnity in an M&A transaction (including litigation, environmental, and employment matters and disputes).
  • May also be provided for identified “one-off” issues which are not necessarily related to an acquisition or a disposal.
  • Used to facilitate a future deal, transfer risk or mitigate a contingent balance sheet exposure.

Insurance due diligence

M&A Insurance does not replace the need to conduct due diligence. Insurers will scrutinise deals before providing their capital for potential reimbursement to a buyer or seller. For this reason, conducting proper due diligence is vital.

HDL’s due diligence service provides you with an understanding of the targets’ insurable and uninsurable risks and enables you to make informed decisions.

Benefits of HDL’s insurance due diligence include:

  • Analysing the effectiveness of existing insurance solutions.
  • Identifying any risks associated with the target’s insurance program, including uninsured or underinsured exposures and historical claims issues.
  • Enables informed decisions on the optimum risk transfer solutions going forward including any opportunities for savings and efficiencies with post completion recommendations and total cost of risk expectations.
  • Summarises any one-off insurance costs (run-off, retroactive cover, risk surveys, occupational health and safety).
  • Allows buyers to ensure that the purchase price fairly reflects the liabilities assumed and future costs.
  • Ensures that the sale and purchase agreement and other contractual agreements accurately reflect and address the insurance related exposures.

Multinational Expansion Risks

In today’s highly uncertain geopolitical climate, M&A activity that involves foreign multinational entities is subject to rapidly evolving regulatory, legal and compliance issues. The shifting compliance landscape in many countries increases the need for comprehensive due diligence to evaluate complex post-transaction integration issues.

From a due diligence standpoint, sifting through a multinational company’s insurance policies to address the risk of unforeseen liabilities and insurance coverage gaps can be an exhaustive exercise. 

HDL is well versed in managing global insurance due diligence and can confidently address global issues providing advice on cross country legislation and policy requirements, as well as facilitating compliance with local insurance laws and insurance tax.

HDL can structure a Controlled Master Program (CMP), pairing a master insurance policy with local (admitted) policies that are issued around the world. In effect, the CMP absorbs potential inadequacies of the target entity’s insurance policies, closing insurance gaps with “difference in conditions” and “difference in limits” provisions in the master policy, while maintaining the local insurance policies in force.

HDL, the right partner for you.

Emerging risk considerations

Many companies are rapidly embracing new technologies that broaden their exposure, including machine learning, augmented intelligence, natural language processing, big data analytics, robotics, and the Internet of Things.

Therefore, any forensic analysis of a target acquisition’s cyber risks that was performed during due diligence may no longer provide a credible assessment of the company’s exposure after the deal closes.

Even as the ink on the transaction agreement dries, the merged entity’s cyber exposures generally increase. As the two organisations begin the process of combining networks and multiple systems, their respective data at specific intersection points are vulnerable to an attack.

Even the best due diligence may not uncover the full extent of a target acquisition’s cyber risks, given the rapid growth in the number and types of sophisticated cyber attacks. One way to mitigate such risks is to seek cyber insurance from insurers that specialise in M&A transactions

These insurers typically provide a range of different cyber insurance policies to absorb a broad array of cyber risks, in addition to multiline cyber peril endorsements that address gaps in an insurance portfolio historically placed with multiple brokers and insurers.

Claim example: Compliance with Laws

After acquisition and in the course of planning certain building works at the target’s factory site, the insured buyer became aware that a perimeter wall of the target’s factory was constructed so as to protrude over the property’s boundary and on to public land in breach of the relevant building laws. The insured’s surveyor recommended that the situation involving the illegal structure be rectified immediately to avoid fines and/or penalties that could be levied by the authorities.

The buyer claimed breaches of warranty under the Share Sale Agreement concerning compliance with laws applicable to the Group Companies in all material respects. The buyer claimed losses in relation to rebuilding and relocating the wall as well as business interruption losses suffered during the period of shut down of the factory.

Based on the terms of the policy, the insurer granted indemnity for the breach of warranty and worked closely with the Insured during rebuilding of the wall, to verify and indemnify the insured’s losses.

(AIG’s Claims Intelligence Series)

Complimentary Review

Complimentary Review

Securing optimal insurance protection is becoming more challenging.

Having a fresh set of eyes can make a dramatic difference.  HDL welcomes the opportunity to evaluate and challenge your current risk and insurance program in a confidential manner that avoids disrupting existing relationships.

Insurance Broker

Our Global Insurance Network

Over 150 Insurers across the globe.

Our Global Insurance Network

Over 150 Insurers across the globe.