It looks like the Liberty Global Transaction Solutions (GTS) team in Australia has not only created growth opportunities for the mergers and acquisitions (M&A) insurance arm of Liberty Mutual, but it is also rewriting history by offering to cover traditionally uninsurable public-to-private M&A deals.
Speaking with Insurance Business, Liberty GTS Australia and New Zealand manager Geoffrey Lee (pictured) discussed why representations and warranties coverage, or warranty and indemnity (W&I) insurance, historically wasn’t suited to public transactions, and how his camp is leading the way when it comes to a transactional risk solution for this untapped section of the M&A space.
“When we’re talking about concerns why these types of transactions weren’t insured previously, there are two main reasons,” noted Lee. “Normally, the seller (the public shareholders) doesn’t give the warranties; the target gives the warranties to the buyer, and basically no-one’s standing behind those warranties. The key thing the insurer wants to find is that they have a right to go against the seller in the event of a subrogation claim for fraud.
“The second key in that space is really just the fact that they’re very high-risk public deals, and public deals have added exposures. What the D&O (directors’ and officers’) market is like here in Australia, and class action environment, people get sued all the time. So, those are the two key risk factors that made these transactions typically uninsurable from our point of view.”
Liberty GTS has tailored its W&I product to have targeted exclusions in these areas to effectively create a target business risk that is similar to that in a private transaction. “That’s how we managed to kind of strip it back and get confident to cover these types of transactions,” said Lee.
For instance, listing rule compliance and public D&O exposure are excluded from the W&I insurance on the basis that other policies specifically designed to cover these risks are already put in place by the target. This allows the representations and warranties insurer to disregard those risks when setting premium pricing.
According to Lee, there’s no cap in terms of enterprise value, but the typical size for insured transactions is within the $50 million to $5 billion range.
Lifting the lid on the move, the Liberty GTS manager stated: “This product’s been around for about a decade, and we’ve got to a position where we’ve finally grown the market so that it’s got very strong take-up in the private M&A space. But where else can we grow, right?
“To increase the market size or increase what we can do, we need to penetrate more deals… [such as] public-to-private transactions. So, it was really another piece of the pie, to go after these other transactions that are taking place that were not getting insurance.”
Moving forward, the goal is to expand the offering further into geographies or jurisdictions where the policy can be adopted, as well as standardising the product to suit other transactions such as those involving small- and medium-sized enterprises. Lee’s camp would also like to see M&A insurance become a ubiquitous part of buying and selling companies.
“Trying to grow the deal sizes and the deal types that we can insure is the key for us for this product,” Lee told Insurance Business. “I’m most excited about the growth profile of where this product can go.”