Taxing times for M&A insurance

AIG’s latest study of its Warranty & Indemnity claims  

Mergers and Acquisitions  

AIG offers a range of bespoke M&A insurance products, specifically designed to solve commercial risks arising from M&A transactions. 

Product Details

AIG’s highly specialised M&A insurance products are underwritten by an international team of skilled insurance and M&A professionals who integrate closely with negotiating parties and their advisers to create tailored solutions that can facilitate commercial objectives whilst minimising deal risk.

Some examples include: 

Warranty & Indemnity (W&I) insurance is a tailored product from AIG Europe’s M&A team which covers either the buyer or the seller for loss arising from breach of the warranties and indemnities given in an acquisition agreement (SPA).

Sellers can obtain a clean exit by using W&I insurance to ensure that the sale proceeds can be returned to investors and avoid the need of an escrow account.

Buyers can procure warranty protection on transactions where the seller is reluctant to give warranties or where there is doubt over the seller’s ability to satisfy a claim.

Market

Any company considering a merger or acquisition

Features & Benefits

W&I Insurance enables a buyer to:

  • Supplement their protection for breach of warranty both in terms of quantum and certainty of payment.
  • Extend the duration of warranties, giving them additional time to detect and report warranty breaches.
  • Distinguish their bid in a competitive auction by negotiating more limited recourse against the seller by supplementing the contractual recourse with W&I insurance.
  • Protect their relationship with the sellers who may become their key employees or business partners upon completion of the transaction.

W&I Insurance enables a seller to:

  • Reduce the risk of contingent liabilities arising from claims, allowing them to exit a business or investment cleanly.
  • Distribute all or most of the proceeds of sale to their investors or service their existing indebtedness as there is a reduced need for an escrow account.
  • Protect themselves where they have not been actively involved in the management of the target business from unintentional non-disclosure or other breaches of the terms of the SPA.
  • Expedite a sale and potentially increase the purchase price by eliminating obstacles to closing, such as protracted indemnity negotiations

Cover

The W&I policy, whether seller-side or buyer-side, will indemnify the insured party for loss resulting from a breach of a seller warranty in an SPA or breach of the seller’s obligations in a tax deed of covenant. 

What AIG brings to the table

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See what AIG brings to the deal table in our brochure

Benefits

What are ‘Mergers and Acquisitions’?

Mergers and acquisitions (M&A) are both aspects of corporate strategy dealing with the buying, selling and combining of separate companies with the intention of generating growth within an existing market or expansion into a new market without having to create and develop a new entity from the ground up or enter into a joint venture.

What are the potential benefits of M&A transactions?

The reasons behind M&A activity vary widely. Common rationales include: seeking economies of scale and distribution; enhancing value through combining businesses; increasing market share through the acquisition of competitors; and rationalising corporate and tax structures.

How do you define success?

An M&A deal is considered successful when both parties emerge from the negotiations having created value of their shareholders, whilst being aware of the potential risks and realisable benefits. In order to achieve such a result, the parties will have to identify which aspects of the business are important to them from an operational and valuation perspective. Once identified, these will form the backbone of the agreement between the parties.

How could M&A insurance help?

M&A insurance is a highly specialised field of cover that facilitates the smooth running of the M&A process. It does so by transferring certain potential risks of the transaction (whether already foreseen or which may surface at a later date) to an insurance policy. M&A insurance can also enable sellers to realise the benefits of the transaction sooner by avoiding the need for a retention or escrow account. This is particularly useful for managed funds who need to return funds to their investors, but has the potential for a significant time-value gain for any seller.
 

Contacts, submissions and claims

Claims

AIG has a dedicated claims team in every jurisdiction where we issue policies. This means that any claim made under an M&A policy will be dealt with by an experienced member of our claims team who has particular expertise in dealing with claims in the jurisdiction of the insured.

The local claims handler works closely with the underwriting team to provide a uniquely efficient claims handling process that is tailored to respond appropriately to the complexities of any claim.
 

Meet our team

We have the largest specialist M&A underwriting team in the insurance industry. Download contact list

For submissions please email us here Angus.Marshall@aig.com

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