Mergers and acquisitions – the importance of risk management

Successful M&A activity “hinges on effective risk management”

Companies can gain considerable strategic advantage by managing the risks associated with mergers and acquisitions (M&A) more aggressively, according to a report launched by Airmic and Marsh at the annual conference

The report identifies the key risks that can threaten the success of M&As up to the date of the sale or acquisition. 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.

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.

“This report demonstrates the strategic role that risk management should play in one of the most important decisions a company can make. 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,” said Airmic chief executive John Hurrell.

Daniel Max, a Managing Director in the Private Equity and Mergers & Acquisitions Practice at Marsh, said: “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 but there are some common practices that can be used to lower uncertainty and reduce the risk of surprises, post-completion.”

"It is the buyer’s responsibility to ensure that what they are buying actually exists and that it is worth the asking price"
Daniel Max

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