Mergers and acquisitions can be powerful strategic tools for Nevada businesses looking to access a larger market share. Therefore, it should come as no surprise that many U.S. corporations bought up companies over the past year, setting one of the highest records for mergers and acquisitions during 2018.
That being said, mergers and acquisitions can be fraught with legal issues. Some of the biggest potential problems are the liabilities of the target company. When evaluating a company, it is important to take into consideration whether its liabilities, both known and anticipated, are covered by its insurance policy. In the event of finding uninsured liabilities, there are many things the purchasing entity can do, the first of which is to adjust the price to reflect these liabilities.
With that in mind, there are best practices for identifying uninsured liabilities. To begin with, companies should analyze the target company’s most substantial liability exposure and ascertain whether they are covered by insurance. Also, it is important to look into the target company’s claims history. This will prove instrumental in figuring out whether settled liabilities could reoccur, and, if so, would they be covered by the existing insurance policy. Speaking of insurance policies, companies doing the buying should also look into the insurance companies themselves to make sure that they are solvent.
Obviously, there are many more matters that purchasing companies should look into when going through a merger or acquisition transaction. For instance, they might benefit from getting run-off coverage, also known as tail coverage, which is insurance that can address any coverage gaps in the current insurance policies. Because of all the legal complexities, it might be beneficial for a company to reach out to a lawyer with experience in business formation and planning.
