Aon  |  Financial Institutions Practice
Transactional Services

Growth by transactional activity is enabling financial institutions to remain competitive, but as with merger and acquisition (M&A) activity, the impacts from any current, legacy and future exposures are real risks.

Transactional activity can enable firms to access new talent, fill gaps in their operating models, and scale up quickly by gaining new customers and employees. Although FinTechs were initially market disruptors, there is now an increasingly symbiotic relationship between banks and FinTechs that is anchored on access to clients, capital, and operational efficiency.

In recent years, SPACs have increasingly popular, attracting underwriters and investors and setting new records for IPO investments throughout 2019 and 2020. The boom in SPACs has given rise to litigation in both transaction objections and concerns about the post-transaction activities of the ongoing company.

Regardless of deal size and motivation, there are several risk and human capital considerations for financial institutions contemplating M&A:

  • Strategic risks relating to deal execution
  • Operational risks such as cyber and technology
  • Intellectual property
  • Reputation risks relevant to aligning cultures and managing negative headlines
  • Flight risk of clients and employees
  • Third-party/vendor risk management
  • Credit & liquidity
  • Compliance

A spotlight on transaction liability

Transaction liability insurance has become a valuable tool in facilitating M&A transactions for financial institutions by transferring risk from the transacting parties to an insurer.

The most common form of transaction liability insurance is known as representations and warranties insurance (R&W) in North America, and warranty and indemnity insurance (W&I) internationally. Other forms of transaction liability insurance include tax liability insurance and contingent liability insurance.

Partnering with a specialist broker and risk advisor can help financial institutions access market capacity and policy wordings to manage risk exposure throughout the deal cycle.

Mergers and acquisitions and other market transactions are complex, time-critical and highly specialized. By working with M&A specialists with an industry focus, financial institutions can access robust knowledge of deal sourcing, transaction processes, and investment strategies to: