Insurance professionals who specialise in mergers and acquisitions (M&A) insurance are very busy right now. In Australia, low interest rates are fuelling domestic and international buyers in a takeovers surge described by some experts as the hottest M&A environment for decades.
“There’s piles of capital everywhere,” said Katie Simmonds (pictured), the new Sydney based managing partner at Fusion, a specialist M&A insurance provider. Simmonds, who started in her new role in October, definitely has good timing. Her new responsibilities cover the M&A markets in Australia, the Asia-Pacific, the United States and Europe.
Refinitiv, a provider of markets data, recently revealed that more than $170 billion worth of M&A deals have been announced in Australia so far in 2021 – about six times more than last year. According to a Reuters analysis of this data, Australia currently accounts for nearly one quarter of all M&A deals in the Asia-Pacific region, excluding Japan.
“Things went a bit quiet in 2020 so there’s pent up demand and activity coming out now,” said Simmonds.
M&A insurance is a very specialized field. All the major international risk management firms and brokerages, including Marsh, Gallagher and Aon, have M&A teams. However, compared to other insurance sectors, there are relatively few insurance professionals working in this area.
Simmonds said she finds the M&A insurance field very appealing because, compared to other types of insurance, M&A relates to the whole business.
“It [M&A insurance] relates to all the risks associated with that business,” she said. “So it brings together knowledge of the entire business operations and so it ties together a lot of different specialist insurance knowledge.”
She also appreciates being part of a very significant decision.
“It’s [buying or selling a business] one of the most important strategic or business decisions that clients will make - and so I enjoy working alongside clients and brokers in relation to one of the most important things they’ll do in their career,” she said.
M&A insurance covers the possible pitfalls involved with buying and selling a business and closing the deal.
“There’s risk associated with selling your business and you have to hold the money back and you never quite know if that money is good,” said Simmonds.
There are contractual guarantees, taxes and ongoing litigation that can all have an impact on a merger or acquisition. Simmonds said tax bills can come in up to seven years after a business is sold and some types of warranties last between two and four years.
“So what we offer is insurance and it means that for those warranties the buyer will not chase after the seller, the buyer will come to us. For example, with a tax bill that relates to something that happened before they owned the business. Our insurance covers that. And so it’s called a clean exit for a seller,” she said.
Some of the M&A activity in Australia is businesses divesting themselves of non-core assets. Simmonds suggested, in line with industry experts, that the timing of this divestment is related to the winding down of the COVID-19 pandemic. However, she also said, for the insurance industry, COVID impacts are here to stay.
“All businesses are impacted by COVID of course and so as part of our underwriting we now need to assess the impact of COVID. It’s an extra risk that businesses are facing and so, in that context, yes, but that’s much the same as any business, like a bank who’s lending to a fish and chip shop these days would be assessing the risk of COVID,” she said.
Looking further ahead, Simmonds sees an important ongoing role for brokers.
“I have great respect for brokers and for the role they play and the reason is that the brokers in this country work so hard for their clients’ best interest and I have seen that time and time again,” she said.
Simmonds said there’ll always be a need for good advice.
“At Fusion our model is to work with brokers and some of the technology developments we’re working on, which is coming to market soon, embeds the role of the broker and the adviser in the process,” she said.
Simmonds said even though Fusion is using technology to streamline the underwriting process to make it more efficient for stakeholders, “the role of the adviser and the broker is a critical part of our business going forward.”
Fusion is part of the POP Holdings Group and was founded by industry veterans Killian McDermott and David Rogers. Fusion launched in early 2019 and is backed by Allianz Global Corporate Specialty (AGCS), a division of Allianz Australia.