Increase in M&A claims highlights importance of indemnity insurance
Statistics have revealed a staggering 200% increase in High Court claims related to Merger and Acquisitions in the period 2019-2021.
Data produced by litigation intelligence experts Solomonic shows M&A claims in all sectors increasing over the period and signposts where probable future disputes could feature.
M&A transactions impact the participants – directors, officers, employees, stockholders, creditors and customers – at every level and even the most strategic and well-planned transaction can fail to deliver the economic benefits that the parties anticipated at signing. These factors make M&A transactions a target for litigation.
Central to the increase in litigation has been the wider adoption of warranty and indemnity insurance with insurers delivering broader warranty cover. There has also been greater examination of boilerplate provisions like variation, no waiver and assignment clauses.
Litigation is also a tool by which parties can attempt to correct perceived pricing errors while incomplete disclosure during the diligence period can often result in a claim.
However, one significant aspect of M&A litigation highlighted by the data revolves around cases alleging fraud or negligent misrepresentation showing that 52.8% failed in 2019, 58.1% in 2020 and 43.3% in 2021. This would suggest cases such as a breach of contract have a greater chance of succeeding compared to more complex allegations.
The Solomonic data on M&A claims shows:
|Total M&A claims||16||43||48||107|
Financial services - including Insurance
|1 (6.25%)||12 (27.9%)||12 (25%)||25 (23.36%)|
|Financial services||1 (6.25%)||10 (23.25%)||10 (20.83%)||21 (19.63%)|
|Insurance||0||2 (4.56%)||2 (4.16%)||4 (3.74%)|
|Retail||1 (6.25%)||4 9.30%)||1 (2.08%)||6 (5.61%)|
|Energy||1 (6.25%)||5 (11.63%)||2 (4.17%)||8 (7.48%)|
|Healthcare||1 (6.25%)||0||3 (6.25%)||4 (3.74%)|
|TMT||3 (18.75%)||6 (13.95%)||7 (14.95%)||16 (14.95%)|
|Real Estate (including construction)||2 (12.5%)||5 (11.63%)||5 (10.42%)||12 (11.21%)|
The Solomonic data on M&A disputes citing fraud or negligent misrepresentation in 2021 shows:
|Total M&A claims||M&A claims citing Fraud OR negligent misrepresentation||Percentage of overall M&A claims citing Fraud OR negligent misrepresentation|
The W Denis dedicated ProFin team specialises in Management Liability Insurance, including Warranty & Indemnity Insurance, Directors & Officers Insurance, Public Offering of Securities Insurance, Corporate Liability Insurance as well as other types of Professional Liability Insurance.
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