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Notable M&A Trends to Watch Out for in 2023
When the world’s largest transactional insurance broker talks… you listen. I’m talking about Marsh McLennan, a Fortune 500 firm with a global reach that wrote more than 1,000 Representation and Warranty (R&W) insurance policies in 2022. Their Transactional Risk Insurance 2022: Year in Review report is an excellent resource for anyone involved in M&A, as well as the specialized insurance products like R&W that have become essential to deal-making. It’s a report worth taking a close look at…because in addition to reporting on trends from the past year… they are also looking ahead and forecasting what they believe will happen in 2023. Not to mention, with their far-ranging reach and involvement in so many transactions, this report is based on a large and reliable sample size of deals and the insurance policies that covered them. The Most Important Lessons from the Marsh Report First off, we have good news – for deal-makers at least. In 2022, we saw significant price drops for premiums for R&W insurance policies. This is largely the result of diminished supply in the fourth quarter of 2021. That drove rates up to just shy of $60,000 per $1M in coverage in the face of ongoing demand for this product in a banner year for M&A. However, by 2022, we saw two things that brought the price for R&W coverage down: Insurance companies increased their capacity by hiring more underwriters to handle the demand, which increased the supply of insurance. As supply increased, we saw the price of coverage trend down in 2022 to where it had been in the past: which was between $33,000 to $36,000 per $1M in coverage. That’s a drop of more than $20,000, which is huge. I don’t expect that prices will see a drop at that level again, of course. However,
Current Trends in M&A Add-Ons
Globally, M&A activity so far has declined 23% in 2022 compared to 2021. Yes, that is a significant drop. But, as I wrote in a previous article, you must consider that 2021 was a historic record-breaking year of deal-making. So, in a sense, 2022 has been somewhat of a return to normal. That said, while worldwide M&A activity has declined, what we’ve seen in the U.S. is little or no decline in deal-making. It’s essentially “flat.” This is largely because of the increasingly common practice of purchasing “add-ons” instead of platform companies.
Legal Diligence Reports and R&W Insurance
I’m helping a first-time client place Representations and Warranty (R&W) insurance, and it’s taking a bit of hand-holding on this first go-around as we get quotes from insurers and review other elements of the process. We should all keep in mind that the primary thing Underwriters want to see is thorough due diligence. Otherwise, they are going to be a lot of exclusions in the policy.
It’s Never Too Late for TLPE
It’s Never Too Late for TLPE I was at a conference recently talking with an M&A advisor. One of his clients sold his RV park for about $10M a few months prior. But, he was getting nervous that he has money withheld from the purchase price, in escrow, in case of a breach of the purchase and sale agreement.
A Look Back at 2022 Q1 M&A Activity
As we exit the first quarter of 2022, all the buzz is around the slowdown in M&A activity. It’s true that deal activity in the beginning of 2022 is a drop from Q4 2021, as well as a drop compared with Q3, Q2, and Q1 of 2021 because there was so much pent-up activity as pandemic closures waned.
Case Study: A Strategic Buyer and TLPE Insurance
Case Study: A Strategic Buyer and TLPE Insurance It took years for Representations & Warranty insurance (R&W) to gain the trust of the M&A community. For years, lawyers argued that nothing was more sure than cold- hard cash sitting in an escrow account. But PE firms, seeing the value of R&W’s ability to successfully transfer risk at a reasonable cost propelled the use of R&W to where it’s present in far more deals than not.
D&O Liability Coverage Versus TLPE Insurance
D&O Liability Coverage Versus TLPE Insurance As I’ve written in the past, there are many founders of small- and medium-sized, privately held companies that simply don’t see the need for Directors & Officers (D&O) liability coverage. I won’t argue the merits of D&O insurance here. But, the reality is that when those owners try to sell their companies, that lack of coverage will come back to bite them.
The Biggest Impact of TLPE Insurance
The Biggest Impact of TLPE Insurance Transactions—the major decisions in the life of a business—impact both Sellers and Buyers. In a standard transaction, a Buyer will request that money from the purchase price be held in escrow. While I’ll admit there is a strong argument justifying these requests, there are viable alternatives.
Four Reasons to Use TLPE in SME M&A Deals
Four Reasons to Use TLPE in SME M&A Deals If you’re a sell-side advisor… investment banker, business broker, or an insurance agent… I have some news for you: If you aren’t at least discussing Transaction Liability Private Enterprise(TLPE) as an option to cover an M&A transaction, you are doing your SME clients a serious disservice.