Transactional Risk

Transactional risk insurance helps protect you from merger and acquisition (M&A) deal risks, whether you are a buyer or a seller. Marsh can advise you on areas of insurable risk and structure insurance solutions to optimise your risk mitigation strategy and protect you from potential post deal liabilities.

Strategic buyers, private equity firms, and other deal participants constantly face a variety of challenges and risks during merger, acquisition, divestiture, and other business transactions. Closing any deal always involves a margin of risk, and having insurance as a layer of protection can be a smart strategic move to protect your business.

Our dedicated specialists have deep experience, with backgrounds in M&A, corporate law, taxation, investment banking, and accounting. They understand the critical, changing dynamics parties face before, during, and after a transaction.

Trends indicate that the demand for transactional risk insurance is rising as global M&A value continues to increase. With key relationships with leading transactional risk insurers worldwide, our specialists work with international team members to coordinate your coverage globally. Our dedicated claims teams and resources also can help navigate any transactional risk claim process on your behalf.

We provide solutions to help you understand, quantify, and mitigate risks in your M&A activity. This allows you to increase deal value, maximise returns, and bridge gaps in deal structure.

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FAQs

As a business, risk preparation is always key. However, even with optimal planning, there’s always potential for disruption due to unforeseen financial exposures or disagreement between parties on risk allocation. Taking steps to minimise disruptive risk is critical to the success of a transaction, particularly when it comes to completing sensitive mergers and acquisitions.

Strategic buyers, private equity firms, and other deal participants, especially across borders, need to keep transactional risk top of mind when engaging in a transaction. Common instances of transactional risks that can impact M&A activities include:

  • Warranty breaches: Potential breaches of seller warranties materially affecting a buyer’s valuation of a business. 
  • Post deal liabilities: Risk of sellers retaining post deal contingent liabilities and preventing the full repatriation and/or re-allocation of sale proceeds.
  • Cross border deals: Investing into a foreign jurisdiction can create significant uncertainty for a buyer with respect to a target business.
  • Impact of key relationships: Friction between a buyer and management sellers who are involved in the business post transaction in the event of a claim for loss.
  • Specific known risks: Specific risks associated with the target business such as potential tax liabilities can cause material financial exposure and create hurdles in deal negotiation between parties.

Strong due diligence, coupled with insurance designed specifically for transactional risk, can help facilitate your deal and safeguard you against financial loss.

Transactional risk insurance provides coverage for strategic buyers, private equity firms, and other deal participants involved in mergers and acquisitions. It typically includes representation and warranties insurance or warranty and indemnity insurance, tax liability insurance, contingent legal risk insurance, and environmental liability insurance.

Insurance coverage for transactional risk allows parties in a merger or acquisition to transfer many of their risks to an insurance provider and away from their balance sheet. This allows companies to allocate them away from the transaction itself and eliminates the need for special indemnities or purchase price reductions.

Tax insurance is an example of a customised solution which can cover known tax issues associated with an M&A transaction and insure specific tax treatments which may be uncertain.

Transactional risk often equates to risk of financial loss for either buyer or seller. We help companies determine what kind of risks involved in an M&A transaction can be transferred to the insurance market as a means of mitigating such financial exposure.

Assessing deal risks early on in an M&A process makes it easier to measure their potential impact when a transaction is in the works. This should go hand-in-hand with proper due diligence and an appropriate insurance program.

Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) (“Marsh”) arrange this insurance and is not the insurer. The Discretionary Trust Arrangement is issued by the Trustee, JLT Group Services Pty Ltd (ABN 26 004 485 214, AFSL 417964) (“JGS”). JGS is part of the Marsh group of companies. Any advice in relation to the Discretionary Trust Arrangement is provided by JLT Risk Solutions Pty Ltd (ABN 69 009 098 864, AFSL 226827) which is a related entity of Marsh. The cover provided by the Discretionary Trust Arrangement is subject to the Trustee’s discretion and/or the relevant policy terms, conditions and exclusions. This website contains general information, does not take into account your individual objectives, financial situation or needs and may not suit your personal circumstances. For full details of the terms, conditions and limitations of the covers and before making any decision about whether to acquire a product, refer to the specific policy wordings and/or Product Disclosure Statements available from JLT Risk Solutions on request. Full information can be found in the JLT Risk Solutions Financial Services Guide.”