Aon and Airmic release M&A guide
Airmic, a UK based association for risk and insurance management professionals, and Aon, a global provider of risk management services, have released a guide to mergers and acquisitions (M&A) at Airmic’s annual conference in Harrogate.
One of the key messages from the conference was that insurance and risk should be considered at an early stage when companies negotiate M&A to protect themselves from nasty shocks.
The guide, ‘Risk and Insurance in Mergers and Acquisitions’, explains what is involved in M&A and gives advice on risk managing them and the role insurance can play.
According to Airmic, it takes the reader through the stages of insurance and risk due diligence.
This includes identifying and addressing the target’s pre-closing liabilities that will be acquired, managing future risks by determining the optimum future structure and costs of the post-closing risk and insurance programme.
It aims to help readers to highlight changes in the risk and insurance budget where the cost insuring or funding risk can be significant and changes may need to be considered within financial due diligence.
It also aims to help with identifying areas where insurance can provide transactions solution, as well as minimising any integration costs of the post-completion programmes.
The report said: “In the UK, a contract to buy or sell a business is based on the principle of caveat emptor, known as ‘buyer beware’. This means it is the buyer’s responsibility to be comfortable with what they are buying. Thus, the deal negotiations and information gathering part of the M&A process are very important to both buyer and seller, and can help to avoid future value reductions in the acquired business.”
John Donald, director of M&A solutions for Aon added: “The importance of risk and insurance within many transactions continues to be underestimated.”
“An analysis of insurance risk and due diligence can help identify important risk information which could materially affect the negotiations.”
The document highlights ways that transaction coverage, for example warranty and indemnity insurance, can protect companies from the financial pitfalls of M&A activity.
Georgina Oakes, research and development manager at Airmic, commented: “For years we have said that members need to be involved in M&A activity at an early stage. This excellent guide goes into the subject thoroughly and in detail and will help them through the process.”
