United Kingdom

Empowering Acquisition Finance

Aon works with private equity firms and corporations to help facilitate merger and acquisition transactions, covering the non-payment of the deferred consideration.

A bridge in the pricing gap

Where pricing discrepancies arise between a seller and purchaser, parties will often agree to a reduced upfront payment with the outstanding balance deferred for a period.

Credit insurance can be used as an alternative to the purchaser providing collateral (e.g. cash or letters of credit) for the deferred amount. The use of insurance can improve working capital, help with the negotiation of the purchase terms and remove the purchaser credit risk.

Case study

Background

A leading private equity fund (‘seller’) who held a majority share in a European retail business agreed to exit under a Share Purchase Agreement in which the holding company sold its operational subsidiary to a publicly quoted firm (‘purchaser’).

Approach

In order to bridge a pricing gap with the purchaser, an arrangement was made whereby 80% of the sale price was payable upfront with the outstanding 20% balance deferred for one year. With no security in place to cover the outstanding balance, the seller partnered with Aon to design a credit solution that would mitigate the risk of non-payment by the purchaser.

Solution

Aon designed a new solution, tailored a single risk insurance contract and sourced full capacity for the transaction. The insurance covered the seller against non-payment of contractual amounts owed under the Share Purchase Agreement.

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At a glance

Acquisition Finance