Technology Mergers and Acquisitions (M&As) carry special insurance risks
1 October 2021
Mergers and Acquisitions (M&As) have remained a vital source of growth and value generation for the European technology sector but come with special insurance coverage risks.
Technology companies are not structured like other corporate acquisitions and the facets to be considered include copyright infringements, patent and licence infringements and data protection breaches. These special features can be addressed through Warranty and indemnity (W&I) insurance, contingent risk insurance and cyber insurance.
The German market has for a number of years found W&I insurance- for losses arising from a breach of a warranty and claims under a tax indemnity in connection with a corporate merger or acquisition (M&A) transaction –a particularly useful product.
Buyers predominantly use this type of insurance to protect themselves against their own financial losses due to breaches of warranty by the seller. It is advisable for the seller to consider the advantages of W&I insurance at an early stage. Despite the comprehensive limitation of the seller’s liability, the buyer receives comprehensive warranties with regard to the acquired target through the W&I insurance.
Contingent risk insurance
This is relatively unknown on the German market and covers an identified risk in addition to W&I insurance or as a “stand-alone” product. However, in order for the identified risk to be accepted by an insurer, the insurers require a detailed preparation in advance, including a reliable quantification of the risk to be insured.
For tech companies a cyber insurance policy should be a focal point in the framework of a transaction. The standalone cyber insurances currently offered follow a modular concept in relation to its own risks (“first party risks”) and/or in relation to the risk of becoming liable to third parties (“third party risks”).
W Denis Europe has experts who can provide and arrange insurance protection for M&A risks in the technology sector. For more information or to obtain a quotation visit www.wdenis.eu or contact Vida Jarašiūnaitė Vida.Jarasiunaite@wdenis.eu