Various economic variables are under debate, including interest rates, unemployment rates, the United States recession (despite ongoing economic growth), which may impact Australia, commodity markets, futures and bond markets, China’s Evergrande collapse, potential property write-downs, and post-COVID company administrations/liquidations. Additionally, the volatility of the stock market is a topic of discussion, depending on who you talk to. Opinions on these matters are as abundant as media articles, so we won’t delve into these rabbit holes.
However, it appears a consensus is emerging that significant consolidation and movement will occur in the corporate marketplace, with Private Equity playing a substantial role. Private Equity’s recent track record of excellent returns on investment is attracting capital at record levels, resulting in funds being oversubscribed and closing out early. Some Private Equity Funds also rolled over their investments due to economic uncertainty around COVID, and these funds are coming due over the next two years.
Will they explore Public Offerings (IPOs)? There appears to be little appetite for this strategy, pointing to an exciting period of transactions, including Management Buyouts (MBOs).
Overlaying this prediction is the fact that company administrations and liquidations are gaining momentum, as the Australian Tax Office (ATO) seeks to recover long-outstanding tax debt, and companies realize they can’t recover from the COVID economic conditions. This trend contributes to more transactions as opportunists consider purchasing sound businesses from administrators.
Why is a Risk Advisor discussing Merger & Acquisition activity? Because we can help alleviate risk, securitise transactional risks and provide for a clean transaction for both vendors (including administrators & liquidators) and acquirers, which may include potential tax liabilities.
Buying businesses from administrators and liquidators involves a broader range of risks, given more restrictive due diligence and the lack of warranties & indemnities in the Buy/ Sell Agreement. Merger & Acquisition Insurance (also known as Warranty & Indemnity Insurance (W&I) or Transactional Risk Insurance) can support any business transaction with A rated Standards & Poor’s (S&P)/Best’s paper.
Merger and Acquisition Insurance can help alleviate contractual sticking points, provide comfort to financiers and release total funds for vendors. Below summarises the six key benefits of this specialised insurance; that every Merger & Acquisition transaction should leverage:
– Protection against potential litigation
– Bid enhancement through financial protection
– Improved finance terms with risk protection
– Confidence for sellers in liability caps
– A secure exit strategy with relationship protection
– Deal-breaking risk mitigation
4Sight Risk Partners are Merger & Acquisition insurance specialists. We delve into these benefits further in our article on The ‘benefits of Merger and Acquisition Insurance’ .
Reach out, as we can help protect you and your business in your merger or acquisition, providing you with more confidence for your next journey.
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4Sight Risk Partners helps secure benefits for businesses from risk management. Drawing on 75 years of global expertise in risk and insurance, we help businesses tackle uncertainties and seize opportunities with more confidence. We protect our clients, providing them with a strategic advantage from their qualified risk profiles and quantified risk appetite.
Review our ‘IQ-ARTA’ Business Risk Framework and stay informed on news and legislative changes that could affect your business with our ‘Looking Forward’ quarterly update.
We welcome your call to discuss your unique business needs.
Gareth Jones
Managing Director
4Sight Risk Partners
0499 988 980
+61 499 988 980 if calling outside of Australia
Adviser Representative No: 1251287
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