The risk management and human capital implications of a merger, divestiture, acquisition or restructuring can sometimes be lower priorities among all that has to happen during a deal. In many situations, though, the efficient evaluation of both corporate and personnel risk can be the most critical part of a successful transaction.
M&A TRANSACTIONAL INSURANCE
Merger and acquisition transactions are a core exit strategy in times of a lackluster IPO market. However, the complexities of representations and warranties made in deal documents can impose significant consequences on the level of indemnification offered by a seller as well as existence of escrows which can, in turn, lead to inability to close a transaction.
Where Things Can Go Wrong
Some examples of issues that trigger a “breach” in the merger or acquisition agreement are:
- Inaccuracies in the financial statements
- Understatements of accounts receivable
- Legal compliance
- Prior litigation
Not surprisingly, the historical driver for Representations and Warranties (R&W) coverage was deal facilitation rather than risk transfer. The policy provides protection for unintentional breaches of representations and warranties in the sales agreement, transferring risk to an insurance policy rather than recovering damages directly from former shareholders. The majority of policies are purchased by the buyer, giving the buyer the advantage of offering more attractive terms by lowering escrow requirements and liability caps.
Historically, R&W coverage has been painstakingly difficult to secure and many times cost prohibitive. It was also geared to very large transactions that didn’t serve the smaller private sector well.
Recently, insurers have made the coverage far more accessible to even smaller transactions and the coverage has evolved into a risk mitigation tool that now comes at a reasonable cost for very specific, tailored coverage for unintentional breaches made in the final purchase agreement.
We have assisted clients with gaining a solid understanding of their options surrounding R&W coverage. Our relationship with all R&W insurers has given our clients R&W options allowing them to negotiate best possible terms for specific exits.
MERGER & ACQUISITION INSURANCE DUE DILIGENCE
When you are dealing with a merger or acquisition, insurance is the last thing you want to worry about. But, without proper due diligence, an exciting new business venture can lead to a host of unintended consequences. We have the expertise to perform a thorough M&A due diligence assessment to ensure you aren’t inheriting unexpected risks.
Three Phase Process
Our due diligence process can be broken down into three distinct phases to help uncover hidden risks and past issues. This can help strengthen your position in the negotiation and, at a minimum, provides you with maximum clarity.
Summary of Findings
CORPORATE RISK & HUMAN CAPITAL
On the corporate risk side, the insurance market has developed a wide array of innovative tools that can fill these important needs. AHT’s professionals will work with you and your deal team to find the insurance products, and interested Underwriters, to make insurance a cost-effective component of your transaction.
On the human capital side, AHT consults with organizations about the benefits, safety, compliance and procedural needs surrounding employees in the transaction. Our assistance can help organizations see how the final picture can benefit all parties, including investors, employees and other stakeholders.
Our Transactional Risk Services include, but are not limited to:
Contract review of the transaction, with specific concentration on warranties, representations, indemnity, insurance and period provisions
Board-level presentations about the long and short-term risk transfer implications for the transaction and how insurance might be a useful risk financing tool
Claims data, litigation reviews and benchmark reports about key issues relative to the transaction
Dedicated advocacy response to claims or litigation that arise due to the transaction
WHY AHT FOR YOUR TRANSACTIONAL SERVICES NEEDS?
EXPERIENCE WITH INVOLVED PARTIES
Our team of professionals is highly experienced representing the many parties involved in a transaction — buyers and sellers in privately held, publicly traded companies and nonprofit organizations.
We’ve built, and maintain, strong relationships throughout the industry and have a solid reputation with investors, bankers, attorneys, auditors, independent directors, regulators and bankruptcy trustees throughout our core verticals.
AHT can perform comprehensive transactional reviews that include traditional corporate risk, as well as employee benefits, employee safety, surety bonds and international services. Our unique size and vertical focus enables our teams to deliver reports that small firms cannot provide and larger firms have difficulty coordinating into a final deliverable.