CFC, the specialist insurance provider, pioneer in emerging risk and market leader in cyber, has encouraged brokers to play a greater role in helping their tech clients mitigate the unique risks they face when considering any merger or acquisition deal.
“The tech sector saw M&A values exceed $1 trillion for the first time last year and SME businesses are key targets for the giants of the sector. Of the 616 acquisitions collectively made by Google, Apple, Facebook, Amazon and Microsoft in recent years, 400 were SME tech companies,” says Joe Perrett, Transaction Liability Private Enterprise Product Manager at CFC. “For tech businesses, M&A risks are wide ranging and can differ great to those of traditional businesses. These risks are not necessarily in physical assets but are often intangible and in many cases unique.”
CFC cites the top three risks within tech M&A deals as:
1. Intellectual property (IP) – often the most fundamental and valuable asset, which gives a tech company its purpose. In a sector with IP at the core of its value, litigation will be commonplace as businesses look to protect their most valuable assets and obtain competitive advantage. Representations and warranties are likely to include IP, so sellers could be liable for any problems that arise post deal. It is worth noting that E&O policies typically exclude patent litigation.
2. Data protection – as tech companies are often data custodians because their customers trust them with their data in large volumes, they have higher levels of exposure to data protection regulation. In tech M&A transactions, data breach issues which surface after a deal can lead to hefty claims and lengthy litigation.
3. Cyber security – the implications of a cyber security breach within tech firms are probably greater than those in any other sector, in part related to data protection as cyber attacks can have a flow-on effect on a tech company’s customer base, which can result in litigation. In tech M&A, cyber security and risk exposure are analysed in detail during the due diligence process.
Perrett concludes: “As tech M&A transactions continue to increase, claims are also on the rise. Brokers can play a vital role in helping facilitate a smoother transaction and give their tech clients peace of mind by ensuring they understand the unique risks that any deal presents and helping them to access fit for purpose insurance protection.”