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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,
Liberty Announces Key Acquisition to Expand M&A Insurance Services
Liberty Company Insurance Brokers is pleased to announce the acquisition of Rubicon M&A Insurance Services, LLC to its national network of specialty insurance brokerages. Rubicon is led by its founder Patrick Q. Stroth, ARM, a trusted authority in executive liability for over 30 years. Given that there was unprecedented demand for M&A insurance in 2021, with all signs pointing to a continuation of this growth in 2022, this is a natural move that will allow Liberty direct access to this market. Not only that, but this acquisition makes Liberty the only national broker network with a specific focus on micromarket
Limited Bandwidth for R&W Insurance in 2021
We’re well into the second half of 2021 now…and Representations and Warranty insurance is more popular than ever. Given the protection it provides both Buyers and Sellers in an M&A deal that should be a good thing. However, that popularity, based on the trust both sides of the table have placed on this coverage, has also brought about an unintended consequence that has resulted in PE firms and Strategic Buyers scrambling to get their deals covered. Here’s the deal: insurance companies are declining to cover otherwise great risks due to bandwidth. In other words, they don’t have the teams of
9 Reasons Why TLPE is Amazing – and One More
An innovative new product, very similar to Representations and Warranty (R&W) insurance, is available now and will provide coverage for small, or “micro,” M&A deals. Transaction Liability Private Enterprise (TLPE) insurance is available for deals with a Transaction Value of $250,000 to $10M. London-based insurer CFC Underwriting is the company behind this innovative new insurance product, and with 230,000 deals in that range of TV, they decided to go after this underserved market. While similar to more traditional R&W insurance, TLPE coverage differs in key ways, and not just in that R&W is intended for much larger deals. One of
Rep and Warranty Insurance Now Available for “Micro-Deals”
In recent years, Representations and Warranty (R&W) insurance has become available to smaller and smaller deals. The eligible deal size dropped to under $20M… then under $15M. This is already quite a feat when you consider that the average transaction value (TV) for deals with R&W coverage in place is $500M. And to be honest, most insurers won’t go lower than $100M—Underwriters are already backed up on processing policies and insurance companies don’t always want to take the time to work on smaller deals that won’t generate large amounts of fees. Now, for the first time ever, this unique type
Representations and Warranty Insurance Post-Pandemic Trends for 2021 and 2022, Part 1
As vaccines roll out and COVID-related restrictions are lifted across the country, it’s time to look at the impact the pandemic has had on the use of Representations & Warranty (R&W) insurance to cover M&A deals… and what to expect in the near term. R&W insurance, of course, transfers all the indemnity risk to a third-party – the insurer. If there are any breaches of reps and warranties post-closing, the policyholder, usually the Buyer, simply files a claim and gets paid damages. The use of this specialized type of coverage had been steadily growing and becoming more widespread pre-pandemic. Even
The “Dating Site” for Lower Middle Market M&A Deals
Pre-pandemic, the M&A world was all about hitting the road, with companies meeting potential capital providers or Buyers personally in board rooms all over the country. That’s a lot of airline miles. But for the last year or so, the majority of business development has been done online. And an innovative online platform that facilitates these sorts of interactions has taken off in a big way. Axial makes it easier than ever for lower middle market companies looking to raise money or get bought to meet privately with PE firms, VCs, Independent Sponsors, and even Strategic Acquirers. I liken it
The Rise of the Independent Sponsors
You have PE firms… you have Strategic Buyers… you have VCs… You have Independent Sponsors. These are individuals looking for a deal. They have money and experience, and they’re looking to buy a company. They differ from other M&A players in key ways. A PE firm reaches out to investors, builds up a nest egg and then, with that pool of money, buys a series of companies… They might buy at $20M, put $10M into the company and then sell for $150M to $200M – a nice return for the fund and the investors. They’re buying to build a portfolio
Dealing With the “Emotional” Side of Strategic Acquisitions
It’s a tragic story seen time and time again in the M&A world, specifically in strategic acquisitions… On one side, you have a Seller. A relatively small company. An owner/founder who has worked hard to build the business to what it is. They are elated to have caught the eye of a larger company seeking to acquire them, whether they will take on an executive role post-sale or will take the sale proceeds and invest in a new venture or sail off into the sunset for a much-deserved retirement. On the other side, you have a Strategic Buyer. Usually, the