M&A insurance gets a shot in the arm

The tussle between Jet and Sahara may help international insurance brokers who have been trying to market yet another exotic insurance cover in India — M&A insurance.

M&A insurance forms part of the specialised lines of transactional insurance that are largely aimed at covering multi-million dollar deals. Takeover bids usually involve huge costs in payments to investment bankers, lawyers, accountants, consultants and public relation firms. These expenses can be covered under an aborted bid insurance cover.

According to Praveen Vashishta, CEO and managing director Howden Insurance brokers, the policy does much more than covering legal costs. “Every deal has a sale and purchase agreement (SPA), which in turn has number of warranties which could be show-stoppers for the deal” he said. “The policy wraps a cover around these warranties and a claim is triggered when any warranty is breached” he added.

Howden had introduced this cover into the India market more than a year ago. “Unlike a product property insurance, people don’t buy M&A deal covers everyday,” said Mr Vashishta. As a result, this is bit of an exotic product even in developed markets.

Insurers also offer to cover friendly mergers where the objective of the policy is to ensure that the insured does not suffer if the counter party reneges on its promises. The cover is also used to limit the liability of the acquirer to third-parties following the acquisition. The deal may have fallen through due to backing out by the counter-party, due to regulatory intervention or through a counter-bid by a third party. In all such cases the insurance policy will cover the incidental expenses.

There is also a cover for takeover targets in the form of a hostile takeover policy. “A hostile takeover, as the name suggests, involves a legal battle and huge costs. A company that feels threatened can get protection against defence costs and other related expenses in thwarting a takeover attempt,” said an insurer.