Private equity buyers are currently seeing opportunities around the world and particularly in the UK and Europe. There has been a rush of capital entering the UK and European markets in the last six months as buyers seek to catch up on capital deployment programs following the calming of stock market volatility, the roll-out of vaccines and correlated general market optimism.
Supporting US buyers handling UK transaction documents
International M&A activity has been a bright spot for business in the last year, with a notable increase in the number of transactions taking place, including a material rise in the average transaction value. With a surge in cross-border transactions, there has been an increase in complexity in trying to bridge the gap between counterparties expectations. US buyers and UK sellers may have different expectations from their transaction documents and such expectations can cause deal processes to halt if care is not taken early to resolve any potential issues.
A key differentiator for US and UK transactions is the disclosure regime contained in the underlying documentation. An English law, European style W&I product would look to include (as a default position) disclosure via (i) the disclosure letter; (ii) the data room; and (iii) any supportive due diligence reports prepared by the buyer. For a US transaction (and a R&W insurance product), disclosure would generally only include the disclosure schedules (which can run to hundreds of pages and include very detailed disclosures by comparison to an English law disclosure letter). These varying norms can lead to difficulty when placing W&I/R&W insurance.
From our experience, when dealing with US buyers using English law transaction documents, in order to provide the coverage and “US style” of policy desired, it is important to be clear from the beginning of the process that this remains contingent on a robust disclosure letter. If this is not handled sensitively, the seller can feel that it is too onerous obligation on them given a typical English law transaction would include a general disclosure of the contents of the data room in support of the disclosure letter. Without setting these expectations at the start, this can have an impact on how smooth the process is in placing a W&I insurance policy.
Our teams at Liberty GTS have become skilled at working with all stakeholders in a transaction to ensure the process works for everyone. It is critical the seller understands what the buyer needs from the disclosure letter to place their W&I policy with the “US style cover” they want. Further, having an experienced and flexible underwriter who has an understanding of every stakeholder’s motivation will assist in the process.
Supporting US transactions with UK and European target operations
Simultaneously, there are US governed transactions being entered into in respect of UK and European businesses. US transaction documents differ in style and it is essential to engage experienced underwriters who are adept at handling such documents.
In this case, the right solution is ensuring experienced people review documentation in formats that they are used to. Liberty GTS have already engaged with some of the major US law firms and come to an agreement over a ‘precedent policy form’. This removes friction in the process because the differing aspects of US-style transactions are already mitigated.
Using an insurer with a global presence enables underwriters to respond to these challenges effectively. Not only does this provide a smoother process, but it also improves the quality of cover. Greater local knowledge and experience brings an improved ability to make commercial and reasonable decisions, rather than excluding risks as a result of limited jurisdictional experience.
Case study: using a global team to deliver international M&A insurances
A US-based business was undertaking an acquisition in Europe and required W&I insurance with “US Style” cover. A key issue arose in relation to the detail of disclosure in the Disclosure Letter. The original draft was “European” in style, generally disclosing the data room, and fairly limited in detail (by comparison to a traditional US disclosure schedule). This provided insufficient comfort to the underwriters with respect to the quality of disclosure and the ability to provide “US Style” cover. Through working collaboratively with all advisors and the client (together with seller input) the scope of disclosures was broadened and the content of the Disclosure Letter became significantly more detailed, enabling an insurance solution to be put in place with “US Style” cover.
[Liberty Global Transaction Solutions’ team] said “We ultimately managed to find a solution for the “square peg, round hole” problems for this type of risk through our unrivalled expertise and deep understanding of the policyholder’s expectations and the process both in the US and Europe. Ultimately, all parties were very happy with the end result.”
