Dynamic food and drink M&A market driving demand for warranty & indemnity and tax insurance

Specialist insurance protection can drive a competitive advantage for sellers, while de-risking transactions for buyers, and assist with deal completion

Warranty & Indemnity insurance (W&I) and Tax Insurance are fast becoming a key part of transactional deals, such as mergers and acquisitions, in the increasingly dynamic food and drink sector.

That’s according to food and drink sector insurance specialists at Arthur J. Gallagher – one of the UK’s largest risk management and insurance brokerages.

For the seller, W&I insurance can cover their contractual liability under a specific sale and purchase agreement.

For a buyer, W&I insurance can credit-enhance the transaction by insuring those warranties with the A-rated insurer, whilst also potentially increasing the limit, time period and scope of the warranties and indemnities offered by the seller.

Tax Insurance is focused on the known risks arising from M&A transactions, which are generally of low/medium probability but high severity.

Alan Pratten, Managing Director of Arthur J. Gallagher’s Major Risks team and a specialist in the food and drink sector, said: “These forms of transactional insurance, designed to assist in the execution and delivery of a deal are now common place in the London-based private equity market.

“With merger and acquisition activity in the food and drink sector growing, these tools need to be fully understood as they can drive a competitive advantage for a buyer, and de-risk a transaction for the seller.

“With regard to tax for example, where significant value differences/ranges apply to tax questions, the use of these solutions has assisted with the completion of the transaction.”

To help companies better understand tax insurance, Arthur J. Gallagher has scheduled a new webinar, which takes place on Friday April 15 at 10:15am.

To register for the webinar, visit http://events.ajginternational.com/Pages/Tax-Webinar.aspx.

To help companies gain an improved understanding of W&I, Arthur J. Gallagher recently produced a podcast giving companies an overview on the subject.

To listen to the podcast, visit https://www.youtube.com/watch?v=lH_0HIi3xr4.

In recent months alone, a number of household names in the food industry have been at the centre of significant deals.

Back in October, Diary Crest – the firm behind Clover, Country Life, Cathedral City and Fry Light – announced it was to sell off part of its dairies operation to Muller[i].

More recently, Premier Foods – the firm behind Mr Kipling, Hovis, Ambrosia and other leading UK brands – has been the subject of an offer by US company McCormick having also recently sold a significant shareholding (17.27%) to noodle company, Nissin[ii].

Meanwhile last year saw the merger of two food giants Kraft and Heinz, now Kraft Heinz, creating what at the time was described as the third-largest food and beverage company in North America and the fifth-largest food and beverage company in the world[iii].

For more information on Arthur J. Gallagher’s Food & Drink Practice and Mergers & Acquisitions Practice, please visit:

http://www.ajginternational.com/corporate-insurance/food-drink-major-risks and & http://www.ajginternational.com/expertise/mergers-acquisitions-and-disposals-major-risks

[i] http://www.dairycrest.co.uk/media/latest-news/news/2015/cma_approval_19_october.aspx

[ii] http://www.premierfoods.co.uk/media/news-releases/Items/Possible-offer-by-McCormick-Company,-Inc and http://www.premierfoods.co.uk/media/news-releases/Items/Nissin-Foods-Holdings-Co-,-Ltd-agrees-to-acquire-s

[iii] http://news.heinz.com/press-release/finance/kraft-heinz-company-announces-successful-completion-merger-between-kraft-foods