Mergers and Acquisitions Insurance

Mergers and acquisitions (M&A) insurance is a type of insurance policy that helps protect parties involved in a M&A transaction from financial loss resulting from unforeseen issues that may arise during the transaction process.

Coverage Scope

Representation and Warranty Insurance (RWI): RWI is one of the most common forms of M&A insurance. It covers breaches of representations and warranties made by the seller in the purchase agreement. If a breach is discovered post-transaction, RWI provides financial protection to the buyer.

Contingent Liability Insurance: This coverage protects buyers in cases where they assume contingent liabilities or unknown risks associated with the acquired business. It can include coverage for tax liabilities, litigation, or environmental issues.

Tax Liability Insurance: In transactions involving tax-related risks, this insurance can provide coverage for potential tax liabilities, including transfer pricing disputes, audits, or other tax issues.

Specific Issue Insurance: M&A insurance can be customized to cover specific issues or concerns identified during due diligence, such as pending litigation, intellectual property risks, or product liability concerns.

Benefits

Risk Mitigation: M&A insurance helps manage and mitigate the financial risks associated with undisclosed or unknown liabilities that may surface after the transaction has closed.

Enhanced Negotiation: It can facilitate negotiations between buyers and sellers by providing a solution for addressing potential disagreements or uncertainties.

Preservation of Funds: Sellers can use M&A insurance to ring-fence funds in escrow, allowing them to access the sale proceeds sooner while providing financial protection to the buyer.

Deal Certainty: Buyers gain confidence in the transaction's stability and viability, which can lead to more efficient and successful M&A deals.

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