When insurance facilitates mergers and acquisitions

It is an insurance that can make the difference in the context of mergers and acquisitions. And which, according to some professionals, should continue to develop in France even if the war in Ukraine puts M&A specialists on their guard.

“The 2008/2009 crisis taught us that when deals become more difficult to close, we look for alternative solutions, and transactional risk insurance can be part of it,” defends Priscille Hérault, head of these solutions at the broker. in business insurance Marsh France.

These very specific insurances can indeed be taken out to reassure a buyer by protecting him against the unpleasant surprises that his target could reserve for him after his acquisition.

So called liability guarantee insurance in the jargon, these covers distributed by players such as AXA, AIG, Beazley or even Liberty, can cover buyers who discover a posteriori that the accounts of the company purchased were not accurate, that certain contracts have been terminated, that the tax authorities dispute old declarations or that there is a problem of compliance with environmental regulations. In other cases, the insurance may cover against risks that have been identified before the transaction, but the extent of which is the subject of debate between buyers and sellers.

Covers not very widespread in France

“The penetration rate of the transactional risk insurance product is increasingly important in France, explains Priscille Hérault. We have seen almost a 50% increase in the number of files between 2020 and 2021 and we anticipate this upward trend continuing in the coming months”, calculates this specialist, who underlines that investment funds and companies have plenty of cash to invest.

It must also be said that these blankets are still relatively uncommon in France, compared to what can be observed in other countries such as the United States, Great Britain or the countries of Northern Europe. Professionals estimate that 15% to 30% of M&A operations give rise to the subscription of this type of coverage in France.

Rising penetration rate

“The penetration rate is increasing because it is a differentiating tool in an offer and prices have been driven down in this market. On an operation of 100 million euros, the guarantee of 15 million euros will cost 180,000 euros for coverage up to 7 years”, argues Louis Bollaert, expert in this subject at the broker Aon. “It’s a product that helps to make deals,” he insists.

The seller can indeed find his way around as well as the buyer. “This allows the buyer to turn to the insurer and not to the seller in the event of a problem. For a selling fund, this allows it to reimburse its investors and make a new deal rather than having to block money in case it has to face a claim from the buyer of the company”.

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