Knowledge base item

Warranty & Indemnity insurance: an insurance policy for business acquisitions

Insurance for the acquisition of a business

The acquisition of a business is always associated with risks. Even after performing the due diligence, there may still be issues that the buyer is looking for assurance on. To limit these risks it is possible to take out insurance. In this way you reduce the risk of buying or selling a business.

Risks in mergers and acquisitions

It may be that comments or remarks are made about matters the extent of which is unknown in advance, for example a tax risk. The Buyer may also specify certain matters on which the Buyer would like guarantees, for example promises of growth or value retention. These guarantees entitle the Buyer to compensation after closing the transaction. These agreements can ultimately lead to claims for liabilities, tax liabilities or litigation. These claims are undesirable for both parties and can therefore create additional unforeseen complications.

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Warranty & Indemnity insurance

In order to limit the risks and to achieve a sustainable transaction, insurance policies exist. Warranty and indemnity (W&I) insurance can be taken out by both the buyer and the seller. It allows the selling party to insure himself against any claims he may receive after the conclusion of the transaction. On the other hand, W&I insurance gives the Buyer cover against any breach of warranties made. It therefore provides extra comfort, something that is particularly desirable in uncertain times.

Benefit to both parties

At Florijnz a transaction is only really cashed if both buyer and seller achieve their intended result and also have a good feeling after the transaction. The W & I insurance is therefore to the advantage of both parties. It allows the seller to secure a 'clean exit' without having to keep money available for certain guarantees. While the buyer is insured for unexpected risks that did not fully emerge from the audit, but may lead to claims. The premium for the insurance can be paid by both parties, depending on the agreements and risks.

In short, W&I insurance provides greater financial security. For both large and small transactions it is worthwhile taking a closer look at the possibilities of W&I insurance. Florijnz will be happy to help you with this. It is important that the passion that has been cashed in, remains cashed in.

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