Services | M & A Due Diligence Review

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M&A Due Diligence Review

The purpose of a risk management M&A Due Diligence review is to identify any unusual exposures to financial loss that can be avoided, insured or assumed by the seller and to determine whether any adjustments need to be made in the offering price. Since we are not in a position to earn or lose commissions on the outcome of the purchase or sale of a company, you can count on our objectivity and confidentiality.

The Due Diligence Report

The principal deliverable of an M&A Due Diligence Review is a concise  memorandum summarizing our findings and recommendations and listing pertinent information about the acquired company's property/casualty and employee benefits insurance programs. We think we have developed a cost-effective process and concise reporting format that will document that you have identified the insurance risks and exercised judgement in making an investment decision.

Our other M&A Due Diligence Review work includes advice regarding the sale of companies, preparation of insurance consultant's reports in behalf of lenders and advice on re-capitalizations.

Key Benefits

  • Identification of deal-breaking exposures.
  • Quantification of the uninsured liabilities assumed.
  • Projection of the future cost of insurance and self-insured losses.
  • Coordination of the insurance matters related to closing.
  • Assurance that the acquired or sold corporation's insurance will meet the lenders' requirements.
  • Recommendations for improvement that will yield cost-savings over the years ahead.

 

Scope of the M & A Due Diligence Review

  1. Review the offering document and confer with you over the type of transaction (stock v. assets) and the parties involved in the process.
  2. Examine other documents in the data room, such as environmental compliance and survey reports, human resources policies and procedures, employee benefits insurance and retirement savings plan documents, litigation and dispute disclosures and sample sales agreements and samples of other contracts.
  3. Confer with you concerning any issues that could be deal-breakers or have a material bearing on the value of the transaction.
  4. Prepare a list of additional information that will be required, including complete copies of all insurance policies, insurance company loss runs and schedules of insurance dating back four years.
  5. Obtain and analyze the workers compensation experience modification worksheets and cross-check the loss runs against OSHA accident reporting forms.
  6. When permissible, discuss with the insurance broker(s) any apparent omissions or coverages that will not meet the lenders' minimum standards.
  7. Obtain and review any missing insurance policies and other necessary documentation that was unavailable in the data room.
  8. Submit the acquired company's insurance coverage and sales information to the RIMS Benchmarking Survey.
  9. Review the indemnification and insurance sections of the purchase/sale agreement and confer with your legal counsel.
  10. Prepare the due diligence memorandum.
  11. Assure that all of the documents required at closing are prepared, including certificates of insurance, a schedule of insurance and additional insured endorsements in favor of the lender(s).
  12. Confer with buyer, the closing attorney and any other stakeholders in the transaction.

      Click here for the Due Diligence Checklist

 

Analysis, Strategy and Advice = Solution

Problem » We uncovered both under-inured and un-insured exposures in the property insurance coverage of a manufacturer that was going to be purchased by one of our buy-out firm customers. Their raw materials, work in process and finished goods inventory values were understated on the insurance policy. Additionally, they depended upon one supplier for a crucial component and the property insurance policy did not cover this contingent exposure.

Solution » Prior to closure, management agreed to strengthen their property insurance limits and close the gap in their contingent business interruption coverage. We coordinated this with the acquired company's insurance broker. Since our service does not require that they buy their insurance through us, the company was able to continue doing business with its long-standing local insurance broker.

Problem » A fast food chain being sold by a larger food service business had accumulated more than two million dollars of self-insured workers compensation and patron liability claims. Our buy-out firm client had to agree to assume these liabilities but sought our advice in finding an insurance solution to treat this exposure to an unpredictable inventory of unsettled insurance claims.

Solution » We advised them to purchase a loss portfolio policy that enabled them to convert their uncertain loss reserves into a fixed dollar premium that was tax deductible. Our actuarial and claim associates contributed to this due diligence review thereby providing expertise their local broker did not have.

Problem » One of our buy-out firms, for whom we had conducted the acquisition due diligence of an electric cogeneration business, engaged us to perform the due diligence in the purchase of additional power generation projects. A highly leveraged transaction, the loan agreements called for a review of the property/casualty insurance performed by an independent consultant.

Solution » We monitored the placement of the insurance covering the newly acquired generation assets, conferred with legal counsel for the lenders on the insurance requirements and prepared a report to the administrator in behalf of the trustees for the lenders, providing them comfort that the insurance in place was the best that was commercially available. P.S. This customer later used us to advise them when they sold some of their original projects in an IPO.