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May 24, 2023 | 9:59 am

Providing protection for SME M&A

George Apperly –

Josh Cowen – Fusion


The world of mergers and acquisitions is constantly evolving. The process, speed of execution and complexities of transactions has only increased over time. Few young M&A practitioners now would believe that a data room was not so long ago an actual physical room full of boxes and paper nor that deals could sign and complete via fax (if they even know what a fax is…).


One huge shift in the M&A market over recent years has been the increased use of Warranty and Indemnity (W&I) insurance on transactions. Ten years ago few investors used insurance on deals, whereas recent statistics show the product now being used on over 50% of European private M&A deals[1]. W&I bridges a gap in expectation. Sellers want to reduce their liability in the share purchase agreement (SPA) to a minimum and buyers want financial comfort that the business they are purchasing is what it appears to be. The W&I market has expanded dramatically over the last decade with more than 30 providers across Europe offering protection on deals.


Despite this huge growth, it’s interesting to note that this global multi-billion premium market actually underserves the vast majority of its potential customers and transactions: whilst W&I is a frequently used tool, in truth most transactions that complete each year do so without insurance. In the UK, 99.2% of businesses are classed as SMEs[2], but buyers of M&A targets with a deal value less than £40m rarely buy W&I insurance. Smaller deals do enter the W&I market on occasion, but they are often left unprotected for various reasons:


  • W&I is a time-consuming process – by offering bespoke cover for each individual deal, underwriters must review a huge amount of information and take time to understand the nuances of the transaction. This leads to another issue:
  • Cost – underwriters and brokers will typically charge a minimum premium and brokerage to transact a deal. Whilst these costs have decreased over time it is true to say that with all costs included a prospective policyholder would struggle to get a W&I policy for much less than £50,000 all in, which is a significant cost for a small acquisition.
  • Underwriters’ capacity and bandwidth – W&I underwriters can get incredibly busy, meaning smaller deals are often bottom of their pile. At certain peak times of year (pre-Christmas, for example) underwriters can significantly reduce their appetite to quote new deals, leaving a narrower and more selective pool of remaining underwriters. This will often leave smaller deals either unable to obtain quotes at all or left with very high cost options.
  • Information flow – to get underwriters comfortable with taking on the risk of a transaction, a huge amount of due diligence is required. Another change in M&A processes has been scopes of DD now being more driven by underwriter requirements rather than the end client.


Whilst significant efforts have been made by insurers to try and solve these issues and provide cover for smaller transactions, they have often been hamstrung by the traditional and manual process to providing protection on M&A deals. Providing protection for smaller deals in a manner that is cost and process efficient, with a simplified but valuable coverage requires a new, digital approach to M&A risk. is an online marketplace for brokers and their clients to purchase and underwriters to sell insurance products for SME businesses. Our MioTM product (M&A Insurance Online), developed with Fusion Specialty, provides transactional risk protection for SME deals in a streamlined, cost-effective way:


  • Brokers access the digital platform with either the buyer or seller of the business alongside any other deal advisors.
  • A digital due diligence form (3DFTM) for buyer side and a digital disclosure form (2DFTM) for seller side policies, made up of binary (yes/no response) questions about the deal and target is completed online by the relevant parties.
  • Underwriters review the questionnaire and provide a suite of standalone covered risks matching the scope of a typical warranty suite.
  • Broker and client review the quote, have ability to change or amend their responses to the 3DFTM / 2DFTM
  • A binding pack is returned by the underwriter.
  • Policy is bound and payment made via the digital platform.


By using this approach, Fusion (powered by the platform) can provide coverage on deals as small as £1m EV, with premiums as low as £10,000 and with a process that can take less than 48 hours. The suite of covered risks sits separately to any warranties in the SPA, they can remain side-by-side with the SPA warranties or can alternatively be baked into the transaction (i.e. used as the contractual warranty suite). This provides the flexibility needed for smaller deals and a completely streamlined approach between negotiated warranties and broad insurance protection, all at a vastly reduced deal and time cost against lengthy negotiation and due diligence.


A recent study by Harvard Business School noted that for companies seeking growth, smaller M&A transactions provide far better success:


“The bet-the-company deal isn’t the route to success. Indeed, infrequent large deals do tend to hurt value creation. Instead, it is a steady stream of transactions — known as programmatic M&A — that delivers the real wins.”[3]


This approach to growth also applies to institutional investors with private equity houses increasingly launching enterprise funds and using platform bolt-on acquisitions to drive value from their portfolios. The need for a more streamlined, digital approach to M&A protection becomes, therefore, increasingly more pressing and immediately relevant.


As the world continues to turn increasingly digital, future investors and deal practitioners will no doubt feel the same way about the current M&A and underwriting process as we feel now about the fax machine. Let’s make sure we’re not the ones still dialling it in.