A boom in mergers and acquisitions in the Czech Republic spurs interest in M&A insurance
9 May 2017
With the development of the merger and acquisition market (M & A) in the Czech Republic, RENOMIA GROUP registers increased interest in transactional risk insurance.
The services are used by strategic and institutional investors, investment funds and private individuals. M & A insurance nowadays is being used by more and more companies. Based on EY Barometer M & A (PDF, 178kB), 98% more transactions were performed in the first half of 2016 than in the first half of the previous year. This is confirmed by the figures of RENOMIA, which between 2015 and 2016 saw an increase of around 15% interest in M & A insurance. The slower growth of insurance compared with the M & A market can be explained by the fact that insurance is mainly used in real estate, IT firms, services, retail / wholesale sectors, and less in the manufacturing sphere; moreover, not every corporate sale transaction is insured.
"With our excellent team and the international reach of the RENOMIA Group, we are able to advise companies in both domestic and foreign acquisitions. We help our clients manage risk by performing insurance due diligence. The next step is to set up appropriate insurance statements and guarantees or ownership titles, "says Hana Pavelková, RENOMIA Senior Specialist Insurance Real Estate, M & A and Construction.
Warranties and Indemnities (W & I) insurance covers against financial losses as a result of a breach of Seller's warranties and indemnities, including legal representation costs. Other benefits of W & I insurance include greater attractiveness of the buyer’s bid in the auction, extended warranties provided by the seller, higher protection of the buyer's rights in an unknown legal environment, or immediate release of the entire purchase price in favor of the seller.
Whereas in a transaction without a statement of warranties and indemnities (W & I), the buyer often deposits approximately 10-15% of the purchase price in an escrow account, to be released after a certain time, conditionally on the fulfilment of certain terms, W & I insurance eliminates this step and the seller can collect the total purchase price immediately. A specific amount - usually around 20% of the purchase price that represents the seller's responsibility – is insured, which assures the risks associated with the transaction.