For immediate release
Use of Transactional Insurance could rise significantly in 2013, according to insurance Managing General Underwriter Ambridge London, February 19, 2013.
The global use of Transactional Insurance could rise by as much as 25% in 2013, according to Jeffrey Cowhey, President, Ambridge Partners LLC. Transactional Insurance, which is a type of insurance that is tailored to address issues that arise in a commercial business transaction, is currently taken out on a small percentage of annualised announced deals, according to Ambridge estimates.
Transactional Insurance is used to address a variety of obstacles that can prohibit deals from completing in areas such as Merger and Acquisitions, private equity investments and restructurings.
According to research by Experian, across the UK, the overall number of mergers, acquisitions, flotations, rights issues and placements announced fell by 3%, from 4,683 transactions in 2011 to 4,543 in 2012. This decline was led primarily by a reduction in deal-making in the final quarter of the year, which saw volumes down by 11% compared to Q4 2011. Thanks to the number of ’mega deals’ which were worth over £1 billion announced in 2012, however, the total value of deals increased by 4.8%, from £231 billion in 2011 to £242 billion in 2012.
Mr. Cowhey added he believes 2013 will be an even better year. He said: “Favourable interest rates combined with the quality of UK businesses and assets makes an attractive proposition for overseas investors. In turn this is helping to keep mergers and acquisitions activity robust and may serve to boost confidence further.”
He added: “We believe that as a sector, we write insurance for just 1% of the annualised announced deals. In comparison Directors and Officer’s (D&O) insurance in the US is purchased by 99% of publicly traded companies. We think once more companies and private equity firms realise they can purchase insurance relating to M&A transactions, more will make inquiry into this kind of insurance.”
Mr. Cowhey said that since the recession of 2008, certain areas of the deal environment have become more challenging and risk averse. In many cases M&A transactions come to a grinding halt when parties are not willing to take on the inevitable risks and liabilities which arise such as broad indemnities or large escrows. Products such as Transactional Insurance can help transaction professionals through these problems and facilitate deal completion. Mr. Cowhey said that over the past three years, Ambridge Partners has seen a significant increase in business, and the firm anticipates a 25% increase in deal submissions in 2013.
“And this is happening across the board for all Transactional Insurance products,” said Mr. Cowhey. “It is an incredibly useful insurance tool available to transaction professionals. It is deal-specific and provides a level of positive support when a deal might otherwise be halted.
“It is very much a growing sector. There are many times that a mutually beneficial transaction is on the brink of closing when an unexpected obstacle presents itself. A buyer – or the funding behind the buyer – cannot get comfortable with an aspect of a deal unearthed during due diligence.
“Historically, the deal would have had to be changed, or an indemnification agreement or escrow used. Now, however, there is another alternative – Transactional Insurance. These products bridge the gaps in the deal, and protect against the potential financial fall-out resulting from something that is stopping the deal going ahead.