Mergers and Acquisitions

Contact: Andrew Hunt
Telephone: (02) 8864 8738

Corporate Australia's recent history is littered with evidence of the dangers implicit in merger and acquisition (M&A) activity. Transactions in the aviation and insurance sectors, for example, have reinforced that:

• quality failures in the M&A due diligence process (we use an extended definition of the term M&A, encompassing any major corporate re-structure such as joint venture formation, asset sell-down, spin-offs and floats) can have catastrophic consequences.
• no amount of financial engineering is going to succeed in turning undesirable asset/revenue streams into
  desirable ones.

Any potential M&A transactions require a due diligence review to address the imbalance between parties in terms of access to price sensitive information. However, due diligence itself is not fail-safe. Furthermore, the due diligence templates used by some organisations emphasise the legal and financial disciplines without paying due heed to risk management and insurance.

Failure fully to consider offerings from the risk management and insurance disciplines can prove costly. Moreover, substantial capacity exists to use non-collateralised capital from the insurance market in M&A transactions and this, allied to a fully-engineered due diligence process which embraces specialist input from the insurance and risk management sectors, can be key in:

• attaining higher levels of certainty in what, by definition, is an uncertain environment
• empowering an entity's M&A team with knowledge of the cost of risk implicit in a transaction
• attaining closure on more transparent and/or favourable terms - this can result either from the placement of insurance or through having conducted negotiations from a more informed standpoint

Examples of the transaction-specific insurance opportunities which exist and which can be used to assist in attaining closure include:

• representations, warranties and indemnities
• tax positions/options material to transaction pricing
• historic/retrospective liabilities
• pending litigation which is material to transaction pricing
• legal opinions which are material to pricing or the future operation of a target entity - an example of this could be in the use/licensing of technology
• environmental impairment

By using a broader and more complete due diligence drag-net, higher levels of certainty can be brought to any M&A transaction through:

• avoiding unrecognised liabilities and potential cost aggravations
• informing deliberations on pricing, deal content and architecture
• smoothing completion and integration of the target entity

Our M&A specialists can provide the risk management and insurance skills and expertise needed to improve the certainty of transaction outcomes.

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