Growing diversity in the S&I market
The market for Warranty & Indemnity (W&I) Insurance and individual risk insurance has been developing dynamically for years. New areas of application, more flexible cover concepts and falling costs have increased the attractiveness of these products. One of the most significant innovations is the introduction of special small deals insurance, which covers transactions with an enterprise value of between EUR 0 and around EUR 15 million - an area that has hardly been insured to date.
Basic principle: protection for buyers, security for sellers
As with traditional W&I solutions, the focus here is on warranty protection. Instead of the seller being liable for breaches of contract, the insurer assumes the risk. For sellers, this means that the purchase price can be collected in full after closing - often even higher, as the buyer receives additional protection at the same time. This reduces the tension between transferring risk and securing the purchase price.
The challenge with smaller deals: due diligence and guarantee negotiations
Traditional W&I insurance policies require comprehensive due diligence - usually in the areas of legal, financial and tax. In the small-cap segment, however, buyers often forego external audits for reasons of time or cost. In addition, a traditional W&I solution requires negotiated guarantees in the purchase agreement - a costly process that can be disproportionate for small deals.
This is precisely where a gap arises: Without due diligence and extensive guarantee negotiations, traditional W&I products are often out of the question.
Small deals insurance - W&I without due diligence and without guarantees
Malakut is closing this gap with a new solution tailored to the market: For the first time, insurance is available for transactions up to EUR 15 million - completely without due diligence and without seller guarantees. The concept works as follows:
- Disclosure / Q&A of the seller directly to the insurer
- Insurer creates a ready-made policy with its own guarantees
- Buyer signs and receives protection of up to EUR 2.5 million
- One-off costs: approx. 55,000 euros
Advantages for buyers and sellers
This solution addresses several risks at once:
- For buyers: protection despite lack of due diligence - no "blind purchase"
- For sellers: No guarantee liability, no escrow commitment
- For both sides: Reduced negotiation time and lower transaction costs
Instead of complex contract negotiations, a ready-to-use insurance policy is created within a few working days - based on existing documents in the data room.
Conclusion: Pragmatic hedging for small-cap deals
Small deals insurance offers a practical way to protect M&A transactions in the lower market segment - without the typical hurdles of traditional W&I concepts. Buyers receive protection, sellers planning security. This establishes a new instrument that could become an important part of transaction practice, particularly in the small and mid-cap segment.
This is a guest article by Philip Frerks, Head of M&A at Malakut.
