Mergers & Acquisitions coverage (M&A) protects either buyers and sellers from financial loss if misrepresentations or inaccuracies in representations or warranties occur. Buyers can distinguish bids, sellers can reduce indemnity obligations – both can close more efficiently.
Inaccuracies in representations and warranties made by the seller or the target company in connection with a merger or acquisition can result in costly liabilities. Buyers can be left without the ability to recover losses and sellers can be forced to hand back a portion of the purchase price.
M&A policies are usually very much customized to individual transactions. Policy periods generally align with the survival period of the representations and warranties set forth in the acquisition agreement. Buyer-side policycan extend beyond the survival period of the representations and warranties that the buyer is receiving from the seller in the acquisition agreement. Deductibles are typically 1% to 3% of the transaction value (based on variables such as the type of business being acquired, the nature and scope of the representations and warranties being insured, the due diligence, etc.).
The impulse for buying an M&A policy often comes from the law firm involved in drafting the sales & purchase agreement. M&A policies in Europe long time used to have a bad image of a negative selection, means only insufficiently prepared and drafted agreements have been submitted to insurers. But this image has changed and M&A became popular as it is calculated into the pricing of the deal and assures additional level of security and stability.