M&A Insurance is a specialised cover that protects buyers and sellers from financial losses due to breach of Representations & Warranties or legal disputes during the transfer of companies. It shields the deal from risks identified during due diligence, offering security against the concealment of critical financial information.
Key Features and Benefits:
- Buy-side cover: protects against losses if the seller has given false warranties, allowing the insurance company to claim compensation instead of the seller.
- Sell-side coverage: limits the seller's liability after the transaction, facilitating its completion.
- Object of Coverage: It mainly concerns breaches of contractual terms in the Sale & Purchase Agreement (SPA), legal, tax or environmental risks.
- Purpose: Provides certainty in complex transactions, reducing the need for escrow accounts.
I am interested in the programme
Frequently Asked Questions
Find answers to key questions about the plan and get information before you choose the coverage that’s right for you.
The insurance covers the financial loss resulting from the breach of warranties and indemnities given by the seller in the SPA. It covers mainly “unknown” risks not identified during due diligence.
Although there are policies for both sides, in 9 out of 10 cases the insurance policy is issued on the buyer’s side (buy-side policy). For the buyer: It allows the insurer to claim compensation directly from the insurer without having to take legal action against the seller. For the seller: Allows him a “clean exit” (clean exit), since it reduces the need to keep money in escrow accounts.
They are usually excluded:
Known risks: Anything already identified during due diligence.
Tax issues: Specific secondary tax liabilities or transfer pricing.
Future filings: Projections of future earnings or returns.
Typically, insurance offers:7 years for fundamental and fiscal guarantees; 2 to 3 years for general commercial guarantees.
A common concern is whether insurance will delay the deal. Experts suggest that the process should start alongside due diligence so that the insurance policy is ready at the time of signing.
In case of fraud or deceit by the seller, the insurance company usually retains the right of subrogation, i.e. after compensating the buyer, it takes legal action against the seller to recover the amount.