Aon Study: Record Highs in Mergers & Acquisitions Insurance Claims Payouts

Among the top triggers for insurance claims in mergers and acquisitions (M&A) globally are breaches related to financial statements, tax issues, material contracts, and legal compliance. These triggers have been identified through extensive research and analysis of numerous M&A transactions across different industries and regions.

Financial statement breaches are a common trigger for insurance claims in M&A deals. Such breaches can include inaccuracies in revenue recognition, inventory valuation, or other accounting practices that can significantly impact the value of the target company. Buyers often rely on the accuracy and reliability of financial statements during the due diligence process, making any discrepancies a major concern.

Tax issues are another frequent trigger for insurance claims in M&A transactions. These can include undisclosed tax liabilities, inadequate tax reserves, or improper tax planning that could expose the buyer to financial risks post-acquisition. Failure to accurately assess and address tax issues can result in unexpected costs and liabilities for the acquiring company.

Material contract breaches are also a significant concern in M&A insurance claims. These breaches can involve violations of key contracts, such as customer agreements, supplier contracts, or licensing agreements that are critical to the target company’s operations. If not properly identified and addressed during due diligence, breaches in material contracts can lead to costly disputes and disruptions post-acquisition.

Legal compliance issues are another major trigger for insurance claims in M&A transactions. Failure to comply with laws and regulations, such as environmental regulations, antitrust laws, or data privacy laws, can result in significant fines, legal actions, and reputational damage for the acquiring company. Detecting and mitigating legal compliance risks early on is essential to avoid potential liabilities and ensure a smooth integration process.

In conclusion, breaches related to financial statements, tax issues, material contracts, and legal compliance are among the top triggers for insurance claims in M&A transactions globally. Identifying and addressing these triggers early on through thorough due diligence and appropriate risk management strategies can help mitigate potential risks and liabilities for all parties involved in an M&A deal. By understanding and proactively managing these triggers, companies can enhance the success and value of their M&A transactions.