In 2023, a CEO survey highlighted that one-third of Australian companies plan to undertake three or more acquisitions in the next three years, signaling a proactive approach to growth through M&A. Private capital players are looking to deploy record capital levels ($37bn). With pending changes to Australian Competition & Consumer Commission (ACCC) merger rules, Australia’s dealmakers face an increasingly complicated regulatory environment. All this to say, businesses pursuing M&A must be ready to confront a host of risks that can disrupt even the most well-planned deals.

 As a brokerage with extensive experience guiding clients through complex mergers, Knightcorp Insurance Brokers understand the dynamics of the deal. Knightcorp is skilled at translating identified M&A risks into well-built policy programs that protect clients at every turn—from hidden financial liabilities to cultural integration challenges. Below, we outline key M&A risks and the insurance solutions that can help mitigate them.

Transactional Risks

M&A deals involve representations, warranties, and financial structures that can create unforeseen liabilities for buyers and sellers. Even with due diligence, unexpected exposures may arise after the transaction.

 Warranty & Indemnity (W&I) Insurance – Protects buyers and sellers against financial losses if representations and warranties made during the deal are inaccurate. This coverage can also help address:

• Due Diligence Gaps – Covering unknown liabilities that emerge post-transaction, even after thorough due diligence.

• Escrow Reduction – Allowing sellers to access more cash at closing by replacing large escrow requirements with insurance coverage.

Financial Risks

Financial uncertainties, including hidden liabilities and tax exposures, can significantly impact the value of an acquisition. Insurance solutions provide financial security against these risks.

●  Credit Risk Insurance – Protects against undisclosed or underestimated liabilities of the acquired company that could lead to financial losses.

●  Tax Indemnity Insurance – Covers potential tax exposures, such as capital gains tax, GST, and stamp duty, that arise from pre-closing periods.

●  Contingent Liability Insurance – Mitigates financial risks associated with unresolved litigation, regulatory matters, or contractual obligations.

●  Litigation Buyout Insurance – Transfers the financial risk of pre-existing or potential lawsuits from the buyer to the insurer.

Operational Risks

Integrating two companies can lead to operational disruptions, cyber threats, and supply chain instability, which can affect business continuity.

●  Cyber Insurance – Protects against cyber threats, data breaches, and Privacy Act 1988 violations that may arise from IT system integrations.

●  Business Interruption Insurance – Covers revenue losses due to disruptions in business operations during the transition period.

●  Trade Credit Insurance – Protects against financial losses due to customer non-payment following an acquisition.

Regulatory & Compliance Risks

M&A transactions often involve complex regulatory approvals and compliance with national and industry-specific laws. Failure to meet these requirements can lead to costly legal and financial consequences.

●  Regulatory Risk Insurance – Helps manage financial exposure from regulatory approvals, compliance challenges, or investigations by the ACCC, ASIC, or FIRB.

●  Pollution Liability Insurance – Covers cleanup costs and legal expenses if the acquired company has environmental liabilities, particularly relevant for mining, manufacturing, and real estate transactions.

Intellectual Property Risk

Intellectual property (IP) can be a valuable asset in M&A deals, but infringement claims or ownership disputes can lead to costly legal battles.

●  IP Insurance – Covers legal defense costs and damages related to IP infringement claims, ensuring protection for patents, trademarks, and copyrights.

People & Culture Risks

Integrating workforces, retaining key talent, and managing employment-related disputes is critical to the success of a merger.

●  Employment Practices Liability Insurance (EPLI) – Protects against claims of wrongful termination, discrimination, workplace disputes, or violations of the Fair Work Act 2009.

●  Key Person Insurance – Compensates for financial losses due to the unexpected departure of key executives post-acquisition due to death, disability, or serious illness.

●  Directors & Officers (D&O) Insurance – Shields executives from lawsuits related to mismanagement, breaches of fiduciary duty, and shareholder disputes.

Knightcorp specialises in delivering tailored M&A insurance solutions that safeguard businesses from deal-related risks. Our team works closely with clients to identify potential exposures, structure innovative insurance programs, and ensure financial security throughout the transaction process. Whether mitigating legal liabilities or securing financial stability, we provide the expertise and coverage necessary to help your M&A deal succeed with confidence.

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DISCLAIMER: This information is provided to assist you in understanding the risks, implications, and common considerations for your industry.  It does not constitute advice and is not complete. Please contact Knightcorp Insurance Brokers for further information.