M&A and D&O: What you need to know

As M&A season begins, adjoining companies often get preoccupied with personnel issues, updates to executive and organizational charts, and deciding on division and corporate headquarters, while not paying sufficient attention to new insurance requirements and in particular creating a new or updated current directors and officers (D&O) policy.

If your business is currently in M&A talks, or may be so in the near future, here is what you need to know before you sign the dotted line:

Make D&O a Priority

Assign the responsibility of either updating or pursuing a new D&O agreement with one proper corporate legal or compliance representative from each company. The first step of this process is to have both parties sit down and compare each company’s current D&O agreement.

Insurance Insight

Even prior to the M&A transaction being publicized, both parties should alert their D&O insurance providers that it will be reviewed by both the company and acquisition target. Have your D&O insurance representative available via Zoom, phone call or in-person when the two sides meet to compare and review D&O policies.

Talking Transparency

Any prior D&O claims should be disclosed as part of the M&A vetting process and when D&O policies are shared. The designed D&O corporate legal or compliance representatives should be ready to keep a log of occurrences to confidentially share with internal stakeholders upon request.

Current Coverage & Claims

As part of M&A transaction talks, the beginning and the end of each plan needs to be detailed and provided to each side. Pay close attention to new early termination coverage dates. A distinct list of what coverage is being added or removed needs to be distributed to both parties as soon as it is available.

New Coverage Knowledge

Special strategy sessions need to be scheduled to discuss long-term future requirements for the D&O policy, including the possible expansion of officers in new positions. Also, the ramification of the D&O policy on other policies needs to be reviewed.

Every M&A Deal is its Own World

No matter the line of business involved, each M&A deal is in its own orbit, so treat it as such during the entire process, from start to finish. Identify possible future claims, no matter how hard it may seem to dream up; a little thought now will save you a lot of shock and surprise in the future about what your D&O plan does not cover.