SME Mergers & Acquisitions Insurance
Big-scale reassurance for small business sales
Think M&A insurance is only available for huge corporate transactions? Not anymore.
M&A insurance is now available for the sale of small and mid-corporate businesses between the value of £250,000 and £20 million. Unlike traditional Mergers & Acquisitions policies (sometimes known as Warranty and Indemnity Insurance, or W&I), underwriting is streamlined and, in most cases, we can indicate likely costs in as little as two working days.
What is Mergers & Acquisitions Insurance?
SME Mergers & Acquisitions insurance is a brand-new insurance that gives you peace of mind when selling your small business, knowing cover is in place for innocent mistakes or misrepresentations.
This ‘merger insurance’ is also known as transactional liability insurance (since it protects you from transaction risk), but we like to keep things simple, so we’ll stick to SME M&A insurance.
M&A insurance covers shareholders for their liability under warranties in the Sale and Purchase Agreement, arising from an accidental mistake in disclosures about your business’ financial health, assets, liabilities, employees, property, or tax history, as described in the Sale and Purchase Agreement. It’s a one-off premium but cover lasts for 7 years.
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What does Mergers & Acquisitions Insurance Cover?
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Accidental breach of warranties: cover for financial loss or liability following a breach of a warranty in the Sale and Purchase Agreement.
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Defence costs: cover to defend yourself if accused of accidental misrepresentation or inaccuracy.
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Full indemnity: traditional warranties and indemnities policies are often arranged with cover at around 10% of the sale value, although higher limits can sometimes be obtained depending on the transaction. In contrast, the SME mergers and acquisitions policy can pay out up to 100% of the enterprise value (up to £20m).
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Claims paid direct to buyer: you can add your buyer as a ‘loss payee’, which means any settled claims are paid directly to your buyer.
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Fraud and Negligent Misrepresentation: buyers can take out a separate, optional FNM policy to protect themselves against fraudulent or negligent misrepresentation by the seller.
“It was a no-brainer for me to invest in this insurance vs the potential cost of being sued.”
7 little known benefits of Transactional Liability Insurance
Our latest guide explores the ‘7 little known benefits of Transactional Liability Insurance’, helping buyers and sellers better understand the protection available.
Get peace of mind for 7 years
Who needs SME Mergers & Acquisitions insurance?
M&A insurance is ideal for the sale of micro and small businesses between the value of £250k and £20m. It’s particularly useful for sellers of manufacturing, education, franchise, retail, leisure, hospitality and property businesses, as well as professional services businesses, technology and transport companies and insurance brokers.
Those concerned about warranties within a proposed Sale and Purchase agreement can be reassured that they are indemnified, should such clauses be called-on post-sale – a useful means of helping sellers and their solicitors to reach agreement on terms with potential buyers.
The cover can also reduce the need for escrow (where a 3rd party holds a portion of the purchase price to protect buyers), so sale funds are released much quicker.
See our guide on Buyers vs Sellers Policies for more information.
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SME M&A insurance for sellers
When you sell all or part of a business, you are likely to be liable for any accidental misrepresentations made about the business you’ve sold for up to seven years after the sale.
So, mergers & acquisitions insurance covers you for seven years for financial loss or liability following a breach of a warranty in the Sale and Purchase Agreement. Merger insurance will also pay for defence costs if you’re accused of accidental misrepresentation.
This means you get to make a clean exit from your business, and you don’t have to worry about being sued for an innocent mistake long after you’ve sold.
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SME M&A insurance for buyers
If you choose to, the buyer can also be named on your policy as a ‘loss payee’, meaning that if a claim against you is successful, the insurer can make settlement direct to the buyer.
While policies available to sellers cover innocent errors in disclosure, buyers can also take out a separate, optional Misrepresentation policy to protect against fraudulent or negligent misrepresentation by the seller.
Hear from our experts
“When you sell your business, the Sale and Purchase Agreement will include warranties about the business’s financial health, assets, liabilities, employees, property, and taxes, based in disclosures made by the shareholders.
If issues or innocent errors on disclosures made are discovered after the transaction completes, your buyer may be entitled to take action against you for misrepresentation. Depending on the nature of the error, claims could be made for up to seven years after the sale.” John Goodson – Client Director.
Contact
Why choose Macbeth as your mergers & acquisitions broker?
- We have practical, lived experience of small business acquisitions
- We’re independent
- We’re Chartered (which means you can trust us)
- You’ll always get to deal with a real, human person (no bots or self-service here)
- We have an in-house claims team (it’s included for free in every policy)
A Practical Guide to M&A Insurance
M&A transactions can bring complex risks for buyers, sellers and investors.
Our guide explains how specialist M&A Insurance can support a transaction, including Warranty & Indemnity Insurance and other relevant covers.
Mergers & Acquisitions FAQs
I didn’t realise I would be liable for 7 years - I’ve already sold my business, can I still get M&A insurance?
Yes, you can take out SME mergers & acquisitions insurance shortly after the sale of your business, as long as a situation hasn’t arisen which may lead to a claim.
What’s the difference between M&A Insurance and Warranty and Indemnity Insurance?
W&I insurance is traditionally for large corporate transactions and sometimes only covers 10% of the sale value. SME mergers & acquisitions insurance is for smaller business sales and can pay out up to 100% of the enterprise value (up to £20m).
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