Understanding TLPE Seller Protect
A Strategic Asset for Sellers in Company Transactions
Selling a company can be stressful and the sellers have several things they have to consider. If not handled properly, they could cost them thousands in claims for breach of warranties.
In the complex world of mergers and acquisitions, risk management is a critical component for both buyers and sellers. One tool that has gained prominence in recent years is Transaction Liability Private Enterprise (TLPE) Buyer Protect insurance. This type of insurance is particularly beneficial for sellers in a company transaction, offering a range of protections and advantages.
What is TLPE Seller Protect?
TLPE Seller Protect is an insurance product that covers liabilities in a M&A transaction. These liabilities may arise from breaches of warranties made in an acquisition agreement. The seller provides these warranties as statements of facts about the state of the business being sold. These statements of fact are wide ranging and can be in relation to any part of the business. For example intellectual property, litigation, tax, financials etc. If these statements turn out to be inaccurate, the buyer may seek compensation for any resulting losses. TLPE Seller Protect steps in to cover these potential liabilities, providing a safety net for sellers.
Benefits of Seller Protect
- Risk Transfer: One of the primary benefits of TLPE Seller Protect is the transfer of risk from the seller to the insurer. This means that if a claim arises from a breach of warranty, the insurance policy can cover the financial impact, protecting the seller's proceeds from the sale. Furthermore, the policy can also provide defence costs in the event the buyer makes a spurious claim.
- Facilitates Smoother Transactions: By providing a mechanism to address potential breaches of warranties, Seller Protect can help facilitate smoother negotiations and transactions. Buyers may feel more secure knowing that there is an “A” rated insurance policy in place to cover potential breaches. This can lead to quicker and more amicable deal closures.
- Enhances Seller's Position: With Seller Protect, sellers can offer more comprehensive warranties, knowing that they are backstopped by insurance. This can make the seller's offer more attractive warranty suites to potential buyers, potentially leading to better deal terms or a higher sale price.
- Reduces Escrow Requirements: Sometimes, buyers may require a portion of the sale proceeds to be held in escrow to cover potential claims. With TLPE Seller Protect, the need for large escrow amounts can be reduced or eliminated. This allows sellers to access more of their sale proceeds immediately.
- Peace of Mind: TLPE Seller Protect provides peace of mind to sellers, knowing that they are protected against unforeseen liabilities that could arise after the transaction is completed. This assurance can be invaluable, particularly in complex transactions where the risk of post-closing claims is higher. Further, you can take out the policy post-completion, although we recommend requesting a quote at your earliest convenience.
Securing Your Transaction Terms with TLPE Seller Protect
TLPE Seller Protect helps sellers mitigate risks and secure smoother, more efficient transactions in company sales. By transferring liabilities to an insurer, sellers can protect their financial interests and improve transaction terms. As the market for mergers and acquisitions continues to evolve, TLPE Seller Protect remains a valuable tool for managing the inherent risks of these complex deals. At Clarke & Son, we work closely with a broker and Transactional Risk Director and Underwriter Bilal Khan at CFC Underwriting, to find the best policy for our clients.
On how the TLPE Seller Protect policy is beneficial in a SME transaction, Bilal Khan said: “At CFC we have facilitated over 400 SME M&A transactions by providing risk mitigation solutions. For SME business sellers it is important to mitigate as much risk as possible. In the UK, sellers can be liable for a breach of warranty up to 7 years post-closing. Therefore, an SME business seller could get stuck in litigation many years after selling their business. This could even result from a spurious claim made by the buyer. TLPE Seller Protect provides the seller with comfort that in the event of a claim they have an insurance policy providing coverage.”
Get in Touch
If you are considering selling your company, TLPE Seller Protect can help safeguard you from potential liabilities in the transaction. Contact our Corporate & Commercial team today to learn how we can protect your financial interests.
