Wednesday, 13 June 2012
Thorough risk management delivers strategic advantages in M&A's says report
A new risk guide by Airmic and Marsh has highlighted the importance of thorough risk management in mergers and acquisitions (M&A), stating that companies can gain a ‘considerable’ strategic advantage by managing associated risks more aggressively.
The report that launched yesterday indentifies the key risks that can threaten the success of M&As up to the date of the sale or acquisition.
According to the report, the most common factors behind a lack of success in the M&A process include: overpayment; a failure to integrate the target smoothly and efficiently; purchase price disputes; and post deal completion issues such as losses arising from uninsured legacy liabilities or warranty and indemnity claims.
It also provides an analysis of the solutions that could be employed to reduce the impact of these risks and deliver a competitive edge in the deal process.
“This report demonstrates the strategic role that risk management should play in one of the most important decisions a company can make—whether to join forces with another enterprise and how to go about doing so. It is a timely reminder to boards to ensure that the insurance and risk function is involved at an early stage, and provides valuable advice to risk managers on how to become fully engaged with the process. It also provides insights into how to use insurance to facilitate the disposal of companies, another strategic area where risk management has a central part to play in helping to make assets more saleable,” said Airmic Chief Executive John Hurrell.
Daniel Max, a Managing Director in the Private Equity and Mergers & Acquisitions Practice at Marsh, commented: “Mergers and acquisitions have long been a popular strategy for non-organic growth and present both challenges and opportunities in the global business environment.
“In the UK, a contract to buy or sell a business is based on the principle of ‘caveat emptor’, or ‘let the buyer beware’. It is the buyer’s responsibility to ensure that what they are buying actually exists and that it is worth the asking price.”
Every M&A deal is different, he said, but there are some common practices that can be used to lower uncertainty and reduce the risk of surprises, post-completion. “Our guide is designed to help companies achieve the optimum outcome from the deal process and continue to be successful.”