Growing trend of firm consolidations through mergers and acquisitions being fortified
Tax and Litigation Insurance Policies Transform M&A Landscape in Italy and Europe
In the dynamic world of mergers and acquisitions (M&A), the use of insurance solutions has become increasingly prevalent to manage specific events or risks. This trend is particularly noticeable in Italy and across Europe, where tax and litigation insurance policies are being utilised to provide benefits such as risk mitigation, deal facilitation, extended protection periods, and improved negotiation dynamics.
Genta Hysi, Head of Southern Europe M&A at Aon, explains that the Warranty & Indemnity ("W&I") policy, which covers the insured from negative economic consequences, has spread rapidly among various professionals and sector operators. Similarly, Andrea Foti, Emea Chief Commercial Officer M&A of Aon, has stated that tax and litigation insurance policies have become essential tools for managing known risks in M&A operations.
In the M&A context, these insurance policies allow potential liabilities hanging over the target company to be contained in exchange for a one-time premium and to eliminate potential deal-breakers. For instance, tax insurance policies in M&A operations cover potential controversies with tax authorities, arising from ambiguous tax regulation interpretations or unresolved fiscal issues found during the transaction analysis.
One of the key benefits of tax insurance is the risk mitigation of tax liabilities. These policies cover potential unknown or uncertain tax costs, reducing exposure to tax-related losses post-transaction. This is especially important in cross-border deals where tax regulations vary between jurisdictions like Italy and other European countries.
By transferring risk to insurers, these policies allow buyers and sellers to proceed with confidence, often expediting deal closure because indemnity negotiations become less contentious. In Italy and Europe, where M&A transactions often involve complex tax due diligence, this contributes to smoother processes.
Policies typically offer coverage periods longer than standard indemnity periods—up to six or seven years for certain fundamental tax representations—providing long-term protection during integration. Seller-side policies can protect sellers from buyer claims about breaches, although such policies generally exclude fraud indemnification.
Litigation policies cover legal dispute risks and are underutilised in the Italian market compared to other European countries, despite offering significant advantages. These insurance policies reduce uncertainty for both acquirers and sellers and facilitate the negotiation phase between them.
As the complexity of tax disputes grows, there is a growing demand for specialized tax controversy and litigation expertise in M&A contexts, which often aligns with or complements insurance coverage strategies. Law firms and advisors in Italy and Europe increasingly combine transactional tax advice with litigation and insurance solutions to provide comprehensive support, reflecting a trend towards a "one-stop shop" approach for tax and litigation issues in M&A.
The European market, including Italy, experiences increasing cross-border M&A transactions necessitating sophisticated tax planning and insurance to mitigate varying national tax risks, ensuring strategic tax-efficient deal structuring and dispute risk management.
In summary, the use of tax and litigation insurance in M&A in Italy and Europe is becoming more prevalent as it lowers transaction risk, improves deal certainty and timing, extends protection periods, and integrates with comprehensive legal advisory services to address both transactional and post-transaction tax risks effectively. This trend follows the growth of warranty and indemnity policies and is expected to continue as businesses seek to manage known risks more effectively.
The trend of utilizing insurance solutions in the M&A landscape, specifically tax and litigation insurance policies, is increasingly popular among professionals and sector operators, providing benefits such as risk mitigation and deal facilitation. These policies are essential tools for managing known risks in M&A operations, particularly in the dynamic world of cross-border deals where tax regulations vary between jurisdictions like Italy and other European countries.
By providing extended protection periods and reducing uncertainty, tax insurance policies minimize potential tax liabilities, offering long-term protection during integration. On the other hand, litigation policies cover legal dispute risks and facilitate negotiations between acquirers and sellers, making them underutilized in the Italian market compared to other European countries, despite significant advantages.
