Mergers & Acquisitions (or M&A) insurance has long protected parties through the sale of a business.
Traditionally, it has been a form of cover that’s considered cost-prohibitive to small businesses due to its significantly high premiums. However, that is currently in the process of changing. Increasingly, organisations are tailoring their M&A insurance to smaller businesses, and it’s great to see as it’s often SMEs who stand the most to gain by having these policies in place.
And it’s also for that reason that we wanted to explain what M&A insurance is here. Join us as we break down why it may be right for your deal.
What is M&A insurance?
M&A insurance helps ensure the sale of a business goes through as planned and delivers on the promises made by both parties – effectively, the warranties and indemnities made. This way, the buyer knows that the financial performance and health of the business is either guaranteed or at least covered in the event of misinformation. The same is true of any unexpected tax liabilities there may be.
Typically, the process of acquiring quotes for this cover requires engaging solicitors and other representatives from either side. This means that simply understanding whether or not the cover is economically viable involves significant costs. Now, however, insurers can indicate on very limited information – so input from solicitors is required later in the process.
Who takes out M&A insurance?
Given the above, it’s easy to understand why the buyer would want to include M&A insurance. Despite it not being a legal requirement, it does ensure that the investment they’re making is protected and that they’re covered in the event of poor performance.
After all, Directors’ & Officers’ Liability policies don’t often cover a breach of sale contract. In other words, buyers might not be protected under their existing policies against any losses that arise from a breach of a representation given by the seller.
But it isn’t just in the best interests of the buyer – the seller also might not feel entirely sure that the buyer won’t withhold the funds. This is a common occurrence in business acquisitions, where the owed monies are only released after a period of time. For the seller, this might prevent them from starting retirement or investing in another business. As a result, they might take out M&A insurance in order to justify the release of funds upon point of sale.
Is M&A insurance suitable for small businesses?
Yes, but it hasn’t always been accessible. That’s because, until recently, premiums would have started anywhere around the £70k mark – a figure that’s often out of reach of smaller business owners, despite the fact that they’re typically the most impacted by a delayed release of funds or can’t financially risk a poor investment.
Now, with insurance companies like CFC Underwriting, there are policies where small businesses can access the same level of security as larger organisations. Starting from £2,500, SME owners can ensure that the business they’re buying or selling continues to be rewarding and that the other party holds up their end of the agreement.
Where can I get an M&A insurance quote?
If you’re currently negotiating a deal, or have a merger in mind, our team can help. We’ll direct you to a straightforward enquiry form, where all you need to do is fill out a few simple questions about your business and an insurer will evaluate your position.
Get in touch today and a member of the RiskBox team will walk you through all the necessary steps to keep yourself protected.