Aon, mergers and acquisitions increasingly secured

In recent years, the use of insurance solutions in M&A deals has grown significantly globally, aimed at managing specific events or risks that could complicate the closing of transactions. This growth has also affected Italy, which has followed the trend observed in the US, the UK and the rest of Europe. "The presence of potential risks related to tax issues in M&A transactions requires companies to protect themselves in order to facilitate transactions and mitigate potential liabilities for buyers. We are seeing a growing trend across Europe to insure these risks," explains Andrea Foti, Aon's Emea Chief Commercial Officer M&A. "Today," adds Foti, "Tax & Litigation insurance policies are emerging as essential tools for managing known risks that frequently arise during due diligence in M&A transactions. These policies allow the transfer of tax and litigation risks to the insurance market, limiting the economic impact of any adverse tax assessments, reducing uncertainty for buyers and sellers, and facilitating the negotiation phase between seller and buyer (going so far as to allow, in specific cases, the elimination of possible deal breakers)".

The growth of the market for Tax & Litigation insurance policies follows that of Warranty & Indemnity policies: "the product," explains Genta Hysi, Head of Southern Europe M&A at Aon, "that has spread most rapidly among the various professionals and operators in the sector is the Warranty & Indemnity ("W&I") policy, which covers the insured against adverse economic consequences. M&A operations, however, can also be 'significantly affected by known risks, such as tax issues and disputes encountered during the due diligence phase. To cope with this need, the United States and many European countries recurrently, if not almost systematically, use innovative insurance solutions to cover known risks, leading the Italian market to fall into line, offering specific insurance policies in the area of litigation and tax'.

Tax policies (tax insurance) cover risks associated with potential disputes with tax authorities, which often arise from ambiguous interpretations of tax law or unresolved issues arising during the tax analysis of a transaction. Such solutions are best suited to risks with a low probability of occurrence but high exposure. In support of the tax position covered by the policy, there must be a sound legal analysis providing an interpretation of the legislation, supported by legal opinions or doctrine. These policies are characterised by their quick operation, Aon explains, pointing out that the benefits of a tax policy are manifold, especially in M&A transactions. "During such transactions, potential buyers often identify tax risks of various kinds in the target companies' structures, which can slow down or even stop the transaction." The risks may relate to corporate, personal, substitute and property taxes. The most common examples include the tax treatment of dividends distributed abroad, the treatment of capital gains from the disposal of qualified shareholdings, the tax treatment of earn-out payments, the availability or existence of Net Operating Losses or issues related to Transfer Pricing and VAT. "A tax policy provides certainty to both the seller and the buyer, reducing uncertainty and speeding up the decision-making process and can also be used outside the M&A context, in this case allowing optimisation of the company's income statement, balance sheet and cash flow statement."

Litigation policies cover the risks associated with litigation and constitute an instrument that is still little used in the Italian market compared to other European countries, despite having significant advantages, both in the context of M&A transactions and beyond. "In the M&A context," explains Aon, "they make it possible to circumscribe potential liabilities burdening the target company against the payment of a one-off premium and to eliminate potential deal-breakers from the transaction. Outside the transactional context, on the other hand, like tax policies, they allow funds that would otherwise be tied up to be freed up and used for other purposes without having to draw on external forms of financing'.

To date, insurance companies have developed three types of policies, ranging from coverage in the event of an unfavourable judgement in litigation, to protection against the possibility that an already favourable judgement may be appealed and overturned at the appeal stage or in the Supreme Court, to coverage of legal and court costs.