Conversation with expert Gonzalo Busto de la Torre, Co-founder & Managing Director at Coverly at Coverly
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Based on your experience working with companies in acquisition processes, and observing how search funds typically operate, from what perspective do you analyze the role that insurance plays in this type of transaction?
I approach this topic from a very practical perspective. On the one hand, as the founder of a brokerage established in 2022, focused on mid-sized companies and change-of-control transactions, many of which are linked to search funds. On the other hand, through my previous career at large international brokers, where I spent many years and, in my final stage, held a regional commercial management role covering central Spain.
This combination allows me to clearly understand how insurance programs are structured in companies of a certain size, how decisions are made in this area, and, above all, how the logic of insurance management changes when a company enters a new phase following an acquisition.
Building on that, something that continues to stand out in many processes is that while financial, legal, or commercial due diligence is usually very thorough, insurance due diligence is often excluded or addressed only after closing. Why do you think this still happens?
Because insurance has traditionally not been perceived as a critical element in the pre-acquisition phase. In many processes, it is viewed as an operational matter that can be reviewed once the searcher has taken over the company and has greater visibility and control.
It is true that, except in particularly high-risk activities, insurance due diligence rarely changes the decision of whether or not to proceed with a transaction. Its impact on EBITDA is usually not very significant in percentage terms. What is often overlooked, however, is that this impact is direct, recurring, and relatively simple to implement. Precisely for that reason, it is surprising that it is not more fully integrated into the pre-acquisition analysis.
Beyond the economic impact, isn’t there also an operational risk in not reviewing insurance before closing an acquisition?
Yes, and this is an important point. When the insurance program is not analyzed prior to the purchase, it may turn out that the company has been exposed for years to certain risks without adequate coverage.
In many activities—especially those related to construction, engineering projects, or services with deferred liability—a claim may arise long after the work has been completed. If those exposures were not properly insured at the time, the issue ultimately surfaces when there is already a new owner. In some cases, part of these contingencies can be mitigated through a representations & warranties insurance policy, but this is not always taken out, or even considered, during the process if no one brings attention to it.
Beyond that aspect, you often mention that an insurance program says a lot about how a company is managed. What kind of signals do you typically find when analyzing these programs?
The insurance program is a very good indicator of the level of management professionalism. When you encounter policies that have been automatically renewed for ten or fifteen years, without any review of coverage or market conditions, or when you see that all lines—property damage, general liability, D&O, cyber—are concentrated with a single insurer, this is usually not the result of a strategic decision, but of inertia.
Each line of insurance has specialist carriers, and it is uncommon for a single insurer to be truly competitive across all of them. When you see this type of structure, it often reflects a passive, complacent, or outdated administrative approach. For a search fund, this insight is very valuable, because it not only speaks to the insurance program, but often anticipates that there are other areas of the company where more professional management can generate value relatively quickly after the acquisition.
In this process of professionalization, the debate over what type of broker a company should work with after an acquisition always arises. Size is often associated with quality. How do you view this?
It largely depends on whether the company is truly relevant to the broker it works with. Large international brokers add enormous value when the account is strategic for them: large premium volumes, complex international structures, or highly sophisticated risks. In those cases, very senior, highly specialized teams are assigned, and the service is usually excellent.
The problem arises when it is assumed that the same level of attention will automatically be replicated for mid-sized companies. From the inside, you know that this is not how it works. Resources are allocated based on the economic importance of the account, and when a company is not a priority, the service tends to become standardized.
This is where smaller or mid-sized brokers, with real experience and a clear focus on this type of company, can deliver more value: greater proximity, direct involvement, and much more active management of the insurance program. It is not a matter of size, but of fit and alignment of interests.
Taking all of this into account, if you had to give a practical recommendation to searchers, how should insurance review be integrated into the acquisition process?
In a systematic way, without adding unnecessary complexity. Just as a commercial or financial review is taken for granted, the evaluation of the insurance program should form part of the process’s best practices, especially once the LOI has been signed and the transaction starts to become tangible.
Moreover, it is a particularly efficient form of due diligence. In most cases, brokers can analyze the existing program, identify inefficiencies, and propose alternatives at no cost, provided the transaction is sufficiently advanced. In search fund target companies, it is very common to find room to improve coverage, risk structure, and costs simply by applying more active management where automatic continuity has prevailed for years.
