What are the major reasons that buyers and sellers might take out M&A Insurance in Italy?

M&A Insurance has taken a while to be adopted in Italy, primarily because it is a practice that comes from common law. As a civil law country, it took a while to be adopted in Italy, but statistics show that the use of W&I insurance cover is increasing quite substantially both in domestic and in cross-border transactions. In 2017, there were almost double the number of transactions that relied on the use of this kind of insurance, as compared to the year before.

In the past, we have mainly been involved in transactions that explored the possibility of insuring the seller with this kind of insurance, but we often found that it was prohibitively expensive, compared to the overall value of the transaction. Recently we were discussing a premium that was in the region of 250-300,000 Euros, which was considered too high by our client.

Notwithstanding that, premium prices have been dropping, and the confidence in this legal solution has increased. We see this more and more and we always consult with the client and suggest they consider taking insurance cover in their transactions. Most of the time, we see insurance cover being taken on because the seller does not want to compromise on price or have a sum set aside in escrow. A contingent liability on the price, that may be claimed back by the buyer at a later date, is unsettling, so the insurance indemnity works well in terms of maximising the transaction value and the outcome for the seller.

Comments by Lorenzo Bacciardi as part of the M&A Working Group Virtual Series publication titled ‘Slaying Uncertainty Assessing the contribution of insurance to the M&A process’. To read in full please click here.