Dai-ichi Life agreed to buy Fidelity Life for NZ$630M but closing is expected between March and July 2027. How do you handle a long sign-to-close?

In insurance M&A, a long sign-to-close period, like the 6-10 months you mentioned, is not uncommon due to the regulatory approvals required and the complexity of the industry. Based on the most helpful WSO content, here’s how to handle such situations effectively:

Key Protections for a Long Sign-to-Close:

1. Price Adjustments:

   • Ensure there are mechanisms to adjust the purchase price based on changes in key metrics like working capital, claims reserves, or investment portfolio performance during the interim period. This protects both parties from unexpected financial shifts.

2. Ticking Fees:

   • Introduce a ticking fee to compensate the seller for the time value of money if the closing is delayed. This is particularly relevant in deals where interest rates or market conditions could shift significantly.

3. Termination Rights:

   • Include clear termination rights for both parties if certain conditions (e.g., regulatory approvals) are not met within a specified timeframe. This reduces uncertainty and ensures neither party is locked into an indefinite waiting period.

4. Interim Operating Covenants:

   • Establish strict covenants to govern the seller’s operations during the interim period. These might include restrictions on major capital expenditures, hiring/firing key staff, or changes to underwriting policies. This ensures the business remains stable and aligned with the buyer’s expectations.

5. Regulatory Approval Conditions:

   • Clearly outline the responsibilities of both parties in obtaining regulatory approvals. This includes timelines, required documentation, and cooperation agreements to avoid unnecessary delays.

Explaining the Long Timeline to a Client:

1. Regulatory Approvals:

   • Highlight that insurance deals often require approvals from multiple regulators, which can be time-consuming. This ensures compliance with local laws and protects the buyer from unforeseen liabilities.

2. Due Diligence Complexity:

   • Explain that the buyer needs time to conduct confirmatory due diligence, especially in areas like claims reserves, reinsurance agreements, and actuarial assumptions. These are critical to validating the agreed price.

3. Market and Operational Risks:

   • Emphasize that the extended timeline allows both parties to address potential risks, such as interest rate fluctuations or operational changes, through the protections mentioned above.

4. Industry Norms:

   • Reassure the client that such timelines are standard in the insurance sector due to the complexity of the business and the need for thorough regulatory and operational checks.

By implementing these protections and providing a clear explanation of the timeline, you can help manage client expectations and mitigate risks during the sign-to-close period.

Sources: Overview of Sell-Side M&A, https://www.wallstreetoasis.com/forum/private-equity/deals-death-and-deception-a-bankers-tale?customgpt=1, Overview of Sell-Side M&A, PE Funds that Win - and IB that Tries, Lunch & Learn -Ins and Outs of Construction