Transactional Risks Insurance: Key Success Tool in the Booming M&A Market

2019 M&A Outlook: Bigger, Better, Stronger

According to expert reports 2019 will outperform 2018 for M&A both by volume and size, continuing the trend of record M&A activity in recent years. In their M&A Trends 2019 Report, Deloitte reveal that 90 per cent of expert survey participants concur with this outlook, stating that M&A executives seem focused on geographic expansion as well as broadening products and services base. The KPMG Consolidated M&A Activity Report for Spain 2018 points to the factors that are sustaining the high levels of M&A activity both in Spain and at international level. Amongst them: availability of finance, liquidity and economic growth. As 2019 promises to bring further foreign investment to the Iberian Peninsula, strong M&A growth is predicted in diverse sectors of the economy, with notable increased volume in Real Estate, Construction and Renewable Energy.

Are any Headwinds Expected?

Although the market may be booming, Deloitte note that some players express concern as to factors that may yet bring headwinds, such as a shift in economic forces and legislative and political activity internationally. The uncertainty surrounding Brexit is relentless, the US government administration sheds no light on stability and the growing popularity of far-right political forces in Southern Europe brings further complications.

Fortunately, prudent risk management in M&A transactions has yielded the tool of transactional risk insurance, including Representations and Warranties Insurance (W&I), Contingent Risk Insurance and Tax Insurance. Transactional Risks Insurance is bringing more and more deals to successful completion each year by transferring deal risk to the insurance sector.

Impact of Transactional Risks Insurance in M&A Transactions

The impact of transactional risk on the deal process is often underappreciated. As each party to an M&A transaction seeks to secure the best bargain possible, the internal and external risks inherent in each business ultimately determine the price and the destiny of the negotiations. Risks identified through due diligence can stall or kill a transaction. The seller is often not willing to take on the risk of making legally binding promises (representations and warranties) on certain issues of the business to the buyer for fear of costly claims, should an unforeseen circumstance render them incorrect or untrue. The buyer, in turn, is not willing to take on the risk of acquiring the business or asset without the ability to claim against the seller should a contractual promise be broken and loss arise. Neither party wants to bear residual risk.

For over a decade now Transactional Risks Insurance and particularly W&I Insurance has played a key role in many M&A deals closing successfully by transferring risk to the insurance market. Beatriz Pavon, who heads up the Willis Towers Watson Transactional Risk practice in Southern Europe highlights that tailored transactional risks insurance, has facilitated the successful completion of many uncertain transactions. As noted by CMS in their annual European M&A Study for 2018, W&I insurance has changed the M&A landscape in the past decade and has never been so widely used as it is now.

Case Study – Willis Towers Watson

W&I Insurance in Practice: Strategic Use of Buyer-side W&I Insurance in a Bid

 

• The client was bidding in a competitive auction process for an asset in a £200 million transaction.

• The seller offered a liability cap of £20 million in the SPA.

• Three bidders were selected for the final round.

• ­W&I insurance allowed the seller to limit its liability to £1 instead of £20 million.

• W&I insurance gave the client a strategic advantage over the other bidders as the seller´s residual liability position was significantly improved.

How Can Our Team Help Your Deal Succeed?

The M&A team at Willis Towers Watson is a truly global team formed by sector professionals with extensive international experience in all areas of M&A, including risk management and legal. We have an in-depth, detailed understanding of the most complex transactions, aligning ourselves with the clients´ interests. This enables us to provide the best service and advice, tailoring the transactional risks insurance policy to each deal.

For more information on how Transactional Risks Insurance can help your business gain a strategic advantage in the booming M&A market, don´t hesitate to contact our Transactional Risks and M&A Team:

 

Beatriz Pavón

Head of Transactional Risks – Southern Europe (Solicitor / Admitted in Spain)
Mergers & Acquisitions, Transactional Risks, FINEX Global

+34 91 154 9172
+34 682002780
beatriz.pavon@willistowerswatson.com