The ART of mergers and acquisitions

Although tight credit markets have slowed down global mergers and acquisitions (M&A), the South African market is still active. When it comes to merging, companies spend a lot of time considering how they will handle all sorts of issues including their human resources policies, employee benefit programmes, office and plant sites and lease agreements. But they seldom look closely at how the two companies' insurance policies and risk management programmes could potentially be merged.

Because of the general inflexibly of the standard processes and practices in the traditional markets, and the fact that the two merging companies may differ substantially, the "new" risk profile of the combined companies may well call for insurance solutions outside of the traditional market. In the wake of the merge, variances could include different insurance renewal periods; diverse markets and brokers (for example, domestic and overseas); and, different insurance programmes and structures (for example, catastrophe covers and deductibles). What's more, gaps may exist which are not initially apparent in the merged environment. Conventional markets inflexibility means that it will not always be possible to "close" these gaps using traditional solutions and clients will have to look at expanding the use of their current alternative risk transfer (ART) facilities. Ideally, this entails seeking the advice of ART experts to close potential gaps in cover; provide for new risks; and, align the different insurance structures, for example, excesses.

Once they get underway, M&As tend to move quickly and the risks are high and often hidden. All sorts of unexpected pitfalls potentially await the unwary including, environmental liabilities, fiduciary and employee benefit liabilities, management liabilities and political risks. Bringing professionals with the necessary actuarial, accounting and insurance skills on board will certainly make the process of identifying, quantifying and providing for hidden obligations, gaps in insurance covers and uninsured risks more efficient and cost effective.

Increasingly insurance brokers are assuming the mantle of risk management consultant, providing a wide range of consulting services, and acquisition consulting is now readily available via the larger brokers to guide corporates through the complexities of M&A.

Typically this would mean coming on board right at the start of the process, providing in-depth due diligence and transactional services (including tailored products like Warranty & Indemnity insurance that can facilitate issues arising from the sale and purchase agreement). A thorough review of the business would be carried out before the transaction takes place and pricing for different scenarios and outcomes will be provided. Once the deal is done the consultant would assist with the implementation of the selected solutions and manage the integration of employee benefits and other insurance and risk management issues.

In essence, having the right acquisition consultant on board could convert potential "deal breakers" into manageable or transferable risks.

For further information please contact:
Herman Schoeman, MD of Guardrisk
Telephone: 011 669-1001

Prepared by:
Melanie Davis, PR@Work
Telephone: 011 615-3309 / 083 225 7450