Company Profile


Many of the indemnities buyers are looking for in respect of historical events are already covered by the vendor’s insurance programme and indeed may be covered by policies that the target has already paid for within a premium allocation. If the indemnities are aligned with the insurance, the negotiations are more straightforward as the vendor is covered elsewhere and the indemnity has more “value” as it is backed by the insurance policy.


Equally, little or no value is obtained in legal teams negotiating indemnities and agreements to provide cover in a way that the insurance industry is not prepared to insure, we have seen a number of situations where one or both parties to the SPA were in breach as soon as it was signed as the cover envisaged simply was not available from insurers.


We have also seen an increased interest in Warranty & Indemnity (W&I) cover; historically seen as expensive and of limited value, the W&I market has changed significantly. Cover is now typically back to back with the SPA, with cover typically only excluding known risks, pension deficit issues and “forward looking” warranties such as agreements not to trade in competition.


Rates for W&I insurance have also fallen with primary covers up to £10m costing between 1% and 1.5% of the limit purchased, pricing for excess layers is even more competitive.


Cover is purchased for a number of reasons, but typically:


n To credit enhance the value of the warranties, particularly where warrantors are exiting the business.


n To increase the value of warranties provided by management teams with limited equity.


n To increase the scope of warranties or extend the limitation period for claims.


As an increasing number of transactions relate to businesses that are being bought out of administration or following banks taking control in a debt/equity swap, W&I cover can provide real value.


With the economy in its current state and margins under close scrutiny, the insurance process can be more than just confirmation to the banks that there is some cover in place; it can add real value to the investment. n


Gallagher Heath is an insurance broker and risk adviser offering a fresh approach to risk protection, yet our original thinking and behaviour is steeped in over 130 years of insurance history. We mirror the knowledge and innovative spirit of founding father Cuthbert Heath who was credited with innovations in the London insurance market that addressed real risks – the first earthquake and hurricane insurances. We expect to be measured on performance, pride ourselves on transparency and never promise something we can’t deliver. Previously Heath Lambert, Gallagher Heath is now part of the Arthur J Gallagher family, one of the largest international insurance and risk management firms in the world. It is one of the top five brokers in the world, employing in excess of 12,000 staff across 14 countries and doing business in more than 110 countries.


Gallagher Heath Mergers and Acquisitions & Disposals Practice


In addition to the risk and programme analysis, there is also a role for the insurance professional in relation to the drafting of the Sale and Purchase Agreement.


Risk and Insurance in Private Equity and M&A 2012/13


The team has been advising on Private Equity and trade transactions for almost 20 years. Services include Insurance Due Diligence (Purchasers and Vendors), Transactional products such as Warranty and Indemnity, Tax liabilities, Public Offering of Shares Indemnity and a full service broker to portfolio companies.


Author Viewpoint 51


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