| When purchasing or selling a business, merger and acquisition insurance provides warranty and indemnity protection that can exceed closing escrows, and enables payment of post closing claims without litigation between buyer and seller. The acquisition of either a domestic company or foreign company can most simply be accomplished with transaction insurance.
Business Acquisitions and Mergers Contain Substantial Risk to Both Parties. In a Purchase (or Merger) Transaction between two companies, Merger and Acquisition Insurance provides peace of mind to both the Buyer and Seller of the business; this Transaction Insurance Protection resolves potential disagreements between the parties, before they create irreconcilable differences that cause an explosion at a closing; after closing Merger and Acquisition Insurance provides Transaction Insurance Protection to the purchaser against post closing financial issues, that rear their head, after the money has changed hands. If your transaction has post closing problems, most often they occur because neither party had reason to believe that the problem existed; sometimes post closing problems are caused by mistakes or accidental omissions, sometimes by negligence, sometimes, it is plain neglect by an employee. Here are some of the types of financial issues and business problems, that can occur after closing: - The delinquency rates and bad debts for the company accounts receivables have skyrocketed, substantially more than the reserve for bad debts, agree to at the closing. The company’s stockholder’s equity and working capital positions have been significantly impaired.
- Misrepresentation of liabilities by the seller’s accounting department.
- An undetected environmental issue, such a landfill or other prior waste disposal on the land.
- At closing, seller's escrow is provided for one age discrimination lawsuit (or sex discrimination lawsuit). Six months after closing multiple age discrimination lawsuits (or sex discrimination lawsuits) are instituted by a group of employees, against the acquired company, putting the buyer’s invested capital at risk of impairment or even total loss.
- A key part of the acquired company's most popular product is manufactured by only one sole supplier, from one factory, that is located in a third world country in which there is currently a violent Maoist type revolution.
- Leaking underground oil storage tanks are contaminating the community’s water. Other, post closing environmental issues can occur.
In an international transaction, changes to the currency conversion law makes it very expensive, or possibly impossible to convert currency, or profitably export or import from the foreign country. After closing, it is discovered that the acquired company’s pension plan has been manipulated; this manipulation has caused underfunding, for which the Buyer is responsible. Liabilities were not disclosed on financial statements, and instead were hidden in offshore entities; discovery is after closing. Foreign country legal non-compliance issues arise, after closing. Some of the warehouses do not meeting government guidelines. Employee fraud and theft has been discovered. It began long before the closing, and the acquired company is responsible for additional liabilities, the amount of which cannot be calculated. There is a sudden, unreported, increase in environmental liabilities, due to the recent acquisition of the company. The IRS, or a foreign taxing authority, has assessed the company for past due taxes, interest, penalties, etc., because of recently discovered tax misrepresentation or fraud, that occurred prior to the acquisition.
Solutions to the above types of Merger and Acquisition Financial Issues and Business Problems can be covered by an insurance policy, especially written and conformed to the clients requirements; also solutions exist through the issuance of a group of coverages packaged together. We invite your questions and inquiries. Please see the Contact Information Below or use the Contact Us webpage.
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