'Risk teams need to be involved earlier during M&A negotiations'

Airmic and Aon call for earlier involvement of risk teams when companies negotiate M&A deals, in a new report launched today.

While mergers make absolute business sense for many companies, they can be extremely complex processes riddled with hidden dangers for risk professionals.

Nor is it purely a case of caveat emptor – there are risks on both sides of the sale, according to John Donald, director of M&A Solutions for Aon. He and colleague Simon Tesselment held a lunchtime workshop today based on the findings of the report, examining key challenges that can arise in M&A situations.

“Our interactive workshop aims to focus on the M&A process and important due diligence issues which risk managers and insurance advisers need to consider,” Donald told StrategicRISK ahead of the workshop. “We will also look at what is expected of both risk managers and advisers in the process; the importance of risk and insurance due diligence; and how it can complement the financial, legal and commercial DD streams.”

Risk management and insurance is “often overlooked” during M&A, said Donald, “but it can assist management and shareholders in making informed decisions around transactions, including certainty on the possible outcomes involving risk exposures, changes to insurance programmes and historic liabilities”.

M&A can be a sprawling subject, so the workshop will look for some focus to identify and examine the top 10 risks and challenges that can impact on transactions and how risk professionals should prepare.

Risks under scrutiny include:

• Understanding what you are buying into;
• Identifying the true cost of risk;
• Ongoing protection from pre-close liability – what you are buying in terms of liability, whether that liability comes to you or stays with the vendor;
• Appropriateness of current insurance arrangements and whether these will continue and transfer, or if these will be integrated into your own risk management programmes. These are issues such as potential conflicts with vendor risk managers and buyer risk managers – whose philosophy is going to prevail?
• Claims experience;
• Worst-case scenario modelling.

“The purpose of the workshop is to highlight the role of the risk manager in the M&A process,” Donald said. “They may well be expected to run the due diligence process. On the vendor’s side, how they collate information and present it and also what they give to possible buyers is very important. On the buyer’s side, what information do they need in order to deliver a worthwhile due diligence report from which informed decisions can be made?”