The Complementary Role of Transaction Insurance

This report shows how thorough diligence can inform, protect and enhance the value that buyers and sellers extract from deals in an increasingly complex environment. It is a means of reducing the risk of value erosion in private M&A and public company situations. Moreover, good diligence can complement investor disclosure expectations and help address public company listing requirements. At the same time, companies have recourse to a widening variety of risk-transfer options through insurance, which are applicable to ESG, digitalisation and public-markets considerations.

ESG

• Wrapping green bonds and power purchase agreements with a credit-insurance solution can effectively increase an energy provider’s investment-grade credit rating.
• Surety bonds and guarantees can fund de-commissioning security needs, enhancing returns through lower cost of capital and improving liquidity.

Digitalisation

• Assigning a value to IP means insurers can collateralise it, helping companies raise funding against their IP.
• Sellers should also be making use of traditional instruments, such as IP theft insurance and IP infringement insurance, to reassure potential buyers.
• Cyber risk should also be insured against, although this insurance is becoming increasingly difficult to obtain. This makes it all the more important to identify, quantify and mitigate against risks to the company’s digital assets and wider IP portfolio.

Public markets

• Warranty and indemnity (W&I) insurance can contribute to reducing value erosion risk by covering SPAC promoters for liabilities that arise after the de-SPAC has completed.
• At the front end of the SPAC process, structuring D&O cover for SPAC IPOs in Europe requires a centralised approach to ensure consistency of both pricing and coverage in what, currently, are relatively fragmented and shallow insurance markets for this type of risk.