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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,
A New Trend in M&A Insurance You Should Know About
In this era of sky-high valuations, PE firms seeking inorganic growth are increasingly looking at an alternative to acquiring fully built out platform companies. The strategy is to buy a platform that is not fully built out yet and available for a lower price and then “add on” other small companies. Not only are these acquisitions cheaper, but they are also easier to transition into the platform, which helps accelerate growth. This trend has also led to increasing adoption of two unique M&A insurance products that have been available for a couple of years but were not widely used until
New Targets for Ransomware Attacks – and How to Protect Yourself
The dream of every startup is to one day be acquired by a PE or VC firm or a Strategic Buyer. All the hard work and dedication finally pays off. And it’s only natural that these firms will announce the happy news to the world with a press release whether it’s a merger or announcement of a successful round of fundraising. Unfortunately, these days such announcements have put a target squarely on the backs of soon-to-be or newly acquired companies in all sorts of industries, from manufacturing to tech to healthcare to consumer-oriented businesses. These days, of course, every company
Cyber Security & Privacy Liability
Cyber crime is a major problem in the United States and around the world. It seems every day there is another news story about hackers and other criminals who have been able to breach company networks and get their hands on confidential data…or take companies hostage by locking them out of their networks or even shutting down a business’s operations until a ransom is paid. Remember, the Colonial Pipeline ransomware attack in May 2021? Cyber criminals managed to access computerized equipment that operates the pipeline, which runs from Texas and New York and delivers about 36 billion gallons per year
Material Contracts and Representations and Warranty Insurance
As Representations and Warranty insurance matures as a product and comes into wider use, Underwriters are taking lessons learned from past claims to equip future policyholders on ways to either identify pre-closing trouble-spots, or to mitigate their impact post-closing. They’re looking for patterns or “danger areas” where breaches are more likely to occur. Many such breaches result in losses far exceeding the R&W policy limit. So, it’s essential that Buyers take action so that they can catch any issues before a deal closes. That way they can address the issue with the Seller. (Read to the end of this article for
Staging Your Deal for a Better Rep and Warranty Experience
When you sell your house, one of the best ways to get noticed by potential buyers is to “stage” the home. This is interior design. Nice furniture and décor. No personal items or family photos. No family photos on the wall. No crazy paint schemes on the wall. Some sellers even hire professional decorators to arrange their homes in this way. Similarly, in the M&A world, if you want to use Representations and Warranty (R&W) insurance, you should be prepared to stage your deal to make it more appealing to Underwriters who would be approving and writing your policy. Doing
The Reluctant Strategic Acquirer
Representations and Warranty insurance transfers all the risk in an M&A deal, including the indemnity obligation, to a third party – that’s the insurer. It’s hard to argue against a major benefit like that. Plus, R&W coverage makes negotiations smoother and faster (and cheaper when it comes to less attorney fees) because all the nitty-gritty of a deal doesn’t have to be picked over. If there’s a breach, a claim is filed, and the insurance company pays. Easy. It’s no wonder it is more widely available and widely used than ever before. The perception may be that R&W coverage has
Trends to Look Out for in the M&A Insurance Market in 2022
If you thought M&A activity would slow in 2022 after the record year in 2021…think again. Market watchers see current levels continuing through at least the first half of next year. As you know, an increase in M&A activity equals more demand for R&W insurance. And that means you should expect to see many of the same trends driving the use of Representations & Warranty (R&W) and other M&A-related coverage continue as well—if not become even more widespread. Here’s a breakdown of what you should be looking out for in the coming year: 1. The “extra” frees being charged on
What Is Insurance Diligence…and Why Should You Care About It?
When evaluating a target company for acquisition, the Buyer conducts a thorough check of financials, IP, tax obligations, contracts, customer lists, and other key aspects of the business. That’s due diligence. But to make an informed decision on whether or not to move forward and close the deal, there’s another aspect of diligence that I recommend…that some don’t seriously many do not consider – insurance diligence. You get some insights on the mindset of management and the caliber of operations from the amount of insurance and the quality of that coverage they have in place. Also, digging deeper, if they