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Global insurance brokerage Marsh has introduced a new Public Warranty and Indemnity (W&I) insurance product in Australia.
According to Marsh, the move comes on the back of demand from private equity firms seeking to enhance their negotiating position, protect their purchase price and improve deal certainty in public to private deals.
The firm noted that PE firms have around $7 billion ready to deploy. Their rush to secure deals is pushing up values and seeing an increasing number of hostile bids. Its data shows public to private ownership deals represented around one in 12 of all transactions in 2017 and that 2018 is already seeing a higher relative volume. It also quoted Dealogic, which said 229 deals worth $18.0 billion have taken place so far this year within Australia, and 2017 saw 850 deals worth $35.4 billion executed.
Marsh’s public W&I insurance product will serve to expand the reach of traditional W&I insurance to public market deals. It addresses threshold considerations to make W&I applicable to and useful for public deals, and will serve to facilitate these public transactions in much the same way as traditional W&I.
The idea is that it will solve one of the challenges of using W&I insurance for a deal involving a public target: that the structure of the shareholdings leads to no public shareholder being willing to provide a meaningful set of warranties. It will assist firms in negotiating a robust set of warranties to be included in the sale contract, and protect that purchase price through the use of insurance capital.
“We saw a real opportunity to extend the benefits of W&I to transactions involving listed businesses and have already seen significant interest in this product from PE firms scoping out public targets,” said Marsh Private Equity and M&A Pacific Practice Leader Chris McDermott.
