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How to reduce risk when selling your business

Transaction Liability Private Enterprise cover is specifically designed to give SMEs extra peace of mind during a business sale process. So, how does it help and why should anyone selling their business consider it?

Mergers and acquisitions (M&A) in New Zealand are running hot, with deal levels exceeding pre-Covid levels. It’s not just big businesses that are changing hands – smaller businesses are part of the action too.

Often these sales can be stressful: negotiating a deal that both parties agree on takes time, and there’s due diligence to be done as well.

Jac Heale, Executive Broker – Financial & Professional Risks, specialises in liability insurance and says that there is a lot of risk in a sale and purchase agreement from a contractual perspective. 

“Many of these risks, such as sellers incurring a financial loss resulting from a breach of warranty, aren’t covered by conventional liability policies.”

Cover such as directors and officers liability or professional indemnity policies, generally have contractual liability exclusions, he explains.

"That has been a huge gap in the sale process for a long time, but now Transaction Liability Private Enterprise (TLPE) is available to plug that gap.” 

Jac Heale headshot

Jac Heale, Executive Broker – Financial & Professional Risks

Transaction Liability Private Enterprise (TLPE)

TLPE is a new insurance solution offered by Crombie Lockwood for small to medium enterprise (SME) business sale transactions. It covers the seller for warranties that are in place as well as legal defence costs, all at an affordable premium.

This kind of insurance was previously available for corporate transactions only.

 “In the past, there probably would have been a lot of comfort in the relationship between sellers and purchasers. But with the uncertain economic environment we are currently experiencing, having cover in place for any warranties is important. It gives the seller of a business a lot more comfort for when they want to move on or retire."

Crombie Lockwood has worked with an established underwriter in Lloyd’s of London to introduce TLPE to the local market, says Jac.

Who needs TLPE?

According to Jac, any business owner who’s selling an enterprise valued between $250,000 to $30 million should consider TLPE.

“When you’re selling a business, you are effectively making promises to any potential buyers about what your business is and what it can do. That may require the seller to put money into escrow for a period of time to cover any claims for non-performance on the sale,” says Jac.

“That can tie up a seller’s proceeds for months, or even years. Having TLPE cover to back up these promises makes the transaction process smoother for sellers as they have cover should their warranties or their representations fall flat.”

Find out more 

Coverage can usually be confirmed within three business days following receipt of transaction documentation and responses to the questions in the TLPE insurance application, subject to underwriting criteria being met.

To find out more, or for indicative terms and a consultation, please contact us.

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Published November 2022