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Brokers 'must do more' on M&A risk

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Brokers should play a greater role in helping tech clients mitigate merger and acquisition (M&A) deal risk, cyber specialist CFC says.

Transaction Liability Private Enterprise Product Manager Joe Perrett says brokers can play a vital role in helping facilitate a smoother transaction and ensuring unique risks any deal presents are understood, and by helping them access suitable insurance.

“As tech M&A transactions continue to increase, claims are also on the rise,” he said, noting the tech sector saw M&A values exceed $US1 trillion ($1.45 trillion) for the first time last year, with SME businesses key targets for tech heavyweights.

“For tech businesses, M&A risks are wide ranging and can differ greatly to those of traditional businesses,” Mr Perrett said, adding the risks can be intangible and unique.”

CFC says the top three risks within tech M&A deals are intellectual property (IP), data protection and cyber security.

In a sector with IP at the core of its value, litigation will be commonplace as businesses look to protect their 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, and E&O policies typically exclude patent litigation.

Tech companies are often custodians of large volumes of their customer’s data, and so are exposed 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, CFC says.

In tech M&A, cyber security and risk exposure are analysed in detail during the due diligence process, and CFC says a breach within a tech firm is likely to have greater implications than in any other sector, affect customers and result in litigation.