The global use of Transactional Insurance could rise by as much as 25 percent in 2013, according to Jeffrey Cowhey, President of Ambridge Partners LLC. The company’s announcement described the product as “a type of insurance that is tailored to address issues that arise in a commercial business transaction.” It is currently taken out on a small percentage of annualized announced deals, according to Ambridge estimates.
Transactional Insurance is used to address a variety of obstacles that can prohibit deals from completing in areas such as Merger and Acquisitions, private equity investments and restructurings.
Ambridge cited research by Experian, which shows that across the UK “the overall number of mergers, acquisitions, flotations, rights issues and placements announced fell by 3 percent, from 4,683 transactions in 2011 to 4,543 in 2012. This decline was led primarily by a reduction in deal-making in the final quarter of the year, which saw volumes down by 11 percent compared to Q4 2011. Thanks to the number of ’mega deals’ which were worth over £1 billion [$1.55 billion] announced in 2012, however, the total value of deals increased by 4.8 percent, from £231 billion [$358 billion] in 2011 to £242 billion [$375 billion] in 2012.”
Cowhey believes 2013 will be an even better year. “Favorable interest rates combined with the quality of UK businesses and assets makes an attractive proposition for overseas investors,” he said. “In turn this is helping to keep mergers and acquisitions activity robust and may serve to boost confidence further.
“We believe that as a sector, we write insurance for just 1 percent of the annualized announced deals,” he added. “In comparison Directors and Officer’s (D&O) insurance in the US is purchased by 99 percent of publicly traded companies. We think once more companies and private equity firms realize they can purchase insurance relating to M&A transactions, more will make inquiry into this kind of insurance.”
Cowhey also indicated that since the recession of 2008, certain areas of the deal environment have become more challenging and risk averse. In many cases M&A transactions come to a grinding halt when parties are not willing to take on the inevitable risks and liabilities which arise such as broad indemnities or large escrows. Products such as Transactional Insurance can help transaction professionals through these problems and facilitate deal completion.
Over the past three years, Ambridge Partners has seen a significant increase in business, and the firm anticipates a 25 percent increase in deal submissions in 2013, according to Cowhey, who also said, “this is happening across the board for all Transactional Insurance products. It is an incredibly useful insurance tool available to transaction professionals. It is deal-specific and provides a level of positive support when a deal might otherwise be halted.
“It is very much a growing sector. There are many times that a mutually beneficial transaction is on the brink of closing when an unexpected obstacle presents itself. A buyer – or the funding behind the buyer – cannot get comfortable with an aspect of a deal unearthed during due diligence.
“Historically, the deal would have had to be changed, or an indemnification agreement or escrow used. Now, however, there is another alternative – Transactional Insurance. These products bridge the gaps in the deal, and protect against the potential financial fall-out resulting from something that is stopping the deal going ahead.”
Ambridge Partners LLC is a specialized managing general underwriter of Transactional, Management Liability, Contingency and Specialty Management Liability Insurance products. It provides clients with customized solutions that facilitate the accomplishment of strategic objectives in connection with a wide variety of circumstances or situations such as: Financings & Investments, Licensing Agreements, Liquidations, Mergers & Acquisitions, Restructurings & Workouts. The company’s wholly owned subsidiary, Ambridge Europe Limited, markets and distributes Ambridge Partner’s products in the United Kingdom and other countries in the European Union and is authorized and regulated by the Financial Services Authority.
Source: Ambridge Partners LLC