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Election is Over, Here Comes the M&A

Election is Over, Here Comes the M&A
November 7, 2012 tfirestine

The election is over, but for managers of risk this doesn’t solve a lot of issues.  Health care reform, unsustainable interest rates and uncertain regulations all plague those trying to predict the future.

One thing is almost certain – taxes are going up at the end of the year. The rise in tax rates is causing an unprecedented surge in mergers and acquisitions activity looking to close by year end. With M&A comes a number of risks. When looking to an insurance broker to assist in M&A activity there are several issues they can assist with.

Due Diligence – For those purchasing companies, understanding the risk you are assuming is important and buying insurance retroactively is difficult and expensive. For those selling a company, it is in your best interest to understand and explain the risks your company manages. Outsourcing insurance due diligence is common activity most funds use when looking to acquire a business.

Directors and Officers suits – Minority shareholders and debt holders often bring suits against the management of companies who sell, especially if they are distressed. Purchasing run-off D&O insurance is imperative. M&A is one of the biggest triggers of D&O suits.

Regulatory concerns – Insurance is available to cover anti-trust and other regulatory exposures. Especially in highly regulated industries like healthcare, the exposure is great.

Shareholder actions – Historically the bulk of M&A exposures, shareholder suits were the premium driver. A drop in public filings has lessened the risk. Although still an issue, it is not the foremost concern for privately held companies looking to sell by year end.

Transaction insurance – Traditionally transaction insurance has been cost prohibitive.  Today, it is increasing viable with ever-competitive insurance market pricing. Insurance can be purchased to cover representations and warranties, tax concerns and any potential liability or contingency.

Contact Calculated Risk Advisors today to discuss any plans for merger or acquisition activity, the more time you have to prepare the better you can use insurance to extract excess value from a transaction.