The importance of the insurance expense in M&A

By John Weatherford, senior vice president, M.E. Wilson

Mergers and Acquisitions (M&A) are complex transactions that require a great deal of planning, due diligence and execution. One aspect of M&A that is often overlooked is the insurance expense. Insurance plays a crucial role in the success of any M&A transaction and insurance expenses should not be underestimated or ignored. Insurance expenses are an important aspect of M&A transactions and should be considered from the early stages of the transaction.

Insurance can help mitigate the risks associated with the transaction and provide peace of mind for all parties involved. Insurance can also help ensure that the transaction is completed smoothly, without any unexpected surprises.

One of the most critical aspects of insurance in M&A transactions is due diligence. Due diligence is a comprehensive investigation of the target company, its financials, operations and liabilities. It is crucial to review the target company’s insurance policies and coverage to determine the level of risk involved in the transaction. This information can then be used to negotiate the purchase price, determine the structure of the transaction and assess the potential impact on the acquiring company’s existing insurance policies.

Another important aspect of insurance, in M&A transactions, is liability protection. Liabilities can arise from a variety of sources including environmental, product and employment issues. Liabilities can also arise from the activities of the target company, prior to the transaction. It is crucial to understand the potential liabilities and to ensure that adequate insurance coverage is in place to protect against these risks.

Finally, Representations and Warranties (R&W) insurance is being purchased more by companies to cover potential liabilities arising from the transaction. Under the terms of a typical M&A deal, sellers carry the risk for any liabilities which occurred while they owned the company. If these issues are discovered after the transaction completes and cause financial loss, the seller is often financially responsible.

Your risk can be reduced by taking out an R&W insurance policy. R&W insurance, which is available to both buyers and sellers, is designed to reimburse the buyer for any financial loss resulting from any inaccuracies in the representations and/or warranties given by the seller and to free up sale proceeds for the seller.

By transferring risk to the insurer, R&W insurance can be used to:

  • Enhance potential buyers’ bids by minimizing the indemnification the seller provides to the buyer.
  • Smooth the transaction process by simplifying the negotiation of the representations and warranties.
  • Reduce credit risk on the part of the buyer, since the buyer can claim against the insurer rather than any number of sellers.


John Weatherford

In conclusion, insurance plays a critical role in M&A transactions and should not be overlooked or underestimated. Insurance expenses are an important aspect of M&A transactions and should be considered from the early stages of the transaction. Insurance can help mitigate the risks associated with the transaction, provide peace of mind for all parties involved and ensure that the transaction is completed smoothly. As an insurance broker, M.E. Wilson understands the importance of insurance in M&A transactions and can help ensure that all parties involved are protected.

You May Also Like

AI accelerator program to christen Tampa Bay Innovation Center’s new headquarters

The Tampa Bay Innovation Center, an early-stage tech incubator and accelerator, in St. Petersburg, will host a showcase event featuring the founders that participated in its most recent accelerator program,

Tampa Bay Chamber’s Minority Business Accelerator receives grant from JPMorgan Chase

The Tampa Bay Chamber received $134,000 from JPMorgan Chase to support its Minority Business Accelerator which was created to support local Black and Hispanic-owned businesses and organizations. The Chamber’s MBA

Older Lundy opens fifth office in downtown St. Petersburg

Older Lundy has opened the firm’s fifth office, in downtown St. Petersburg, through the acquisition of Heller Law, a business and commercial litigation law firm. Sam Heller, managing and founding

Shumaker establishes St. Petersburg office

The largest business law and legislative affairs firm on the West Coast of Florida has officially put boots on the ground in Pinellas County, announcing plans to open an office

Other Posts

PostcardMania surpasses $100 million in revenue

PostcardMania, a Clearwater-based marketing technology firm, is reporting it achieved record revenue in 2023, crossing the $100 million mark to hit $104.6 million, a new high for the company. The

National whiskey festival hits St. Pete this weekend

The Tampa Bay region’s largest whiskey event will take place, in St. Petersburg, for the first time, on February 3. Known as the event of the year, for whiskey lovers

Proper House Group announces leadership team for Ash and Alter Ego (PHOTOS)

Proper House Group has announced the opening leadership team for its two newest endeavors, Ash, a full-service restaurant with Italian- inspired cuisine and Alter Ego, a music–infused cocktail lounge, opening

Shirl Penney, Rhea Law and more tapped to speak at Synapse Summit 2024

The sixth annual Synapse Summit, an event that connects, catalyzes and celebrates Florida’s innovation leaders, held February 28, at Amalie Arena, in Downtown Tampa, has released its schedule for the