Taking the worry out of M&As

Like the financial, legal and human resource professionals involved in planning and bringing to life the synergies in potential in M&A’s, understanding the risks facing the new companies as well as planning and implementing new risk policies is crucial to any M&A process.

Spiros Fatouros, Specialist, Alexander Forbes Corporate Finance Risk Solutions, says, “Scoping and understanding the risk inherent in any M&A transaction is as important to the survival of the new enterprise as getting the financials right.”

Says Fatouros, “At the inception of any due diligence processa key risk professional needs to be appointed to the M&A steering committee- to assess risk across the whole transaction, encompassing both physical assets and human capital.”

The preparation of the information required for due diligence purposes requires in-depth knowledge of actuarial principles, relevant accounting concepts, latest industry solutions, and knowledge of how to motivate and retain staff during what are often uncertain times.

Typically, Alexander Forbes Corporate Finance Risk Solutions provides advice across all three phases of the M&A process.

Prior to the transaction a thorough assessment and quantification of employee and insurance risk and liability is conducted. During the transaction an insurance programme and continuation plan addressing all risks is developed and implemented. Post transaction the Corporate Finance Risk Solutions team continues to advise on retention and future strategies.

Typical risk factors that need to be considered in each phase are as follows.

Pre-merger Phase:

• Assess risk across the whole project (enterprise-wide risk management)
• Conduct a policy review identifying gaps and restrictions in coverage.
• Review purchase and sale agreements and comment on all associated insurance-related issues.
• Review and advise on the balance between formal and self insurance options ensuring that both are adequately funded, solvent and suitably structured.
• Evaluate condition of physical assets and their ability to deliver the merged entities business goals.
• Provide a detailed report for investors, including priorities for management to address while highlighting potential deal beakers and their cost implications. This report would also look forward to the objectives of the new business after themerger - identifying future risk and advising insurance arrangements.

During the merger:

• Arranging representation and warranty insurance products to assist either the buyer or the seller cater for the warrantees provided for in the sale and purchase agreement.
• Train new management team in Enterprise Risk Management (ERM)
• Conduct environmental clean up operations and closure liability assessments.
• Analyse pension, medical and long-term incentive arrangements.
• Identify and quantify shortfalls and undisclosed HR liabilities.
• Establish ownership of reserves.
• Comment on adherence to statutory and legal requirements.
• Apply scenario testing as necessary.
• Transition the employee benefits plans, medical aid and long-term incentive schemes while ensuring that key staff are maintained.
• Balance formal and self insurance intelligently within the new business.
• Resolve any outstanding insurance claims.

Post-merger Phase:

• Help and support the new company to understand and manage their own risk such that when the Alexander Forbes Acquisition Consulting Team leaves the business the owners are empowered to continue managing their whole risk portfolio across the whole business (ERM).

Says Fatouros, “The experienced industry knowledge of our people enables us to add value to M&A processes throughout South Africa and internationally.”

Specifically, “Understanding the interaction between commercial realities, risk management andpeople, while drawing on theindustry knowledge specific toeach very different M&A transaction is where we add value to these processes”, concludes Fatouros.

Specifically, “Understanding the interaction between commercial realities, risk management andpeople, while drawing on theindustry knowledge specific toeach very different M&A transaction is where we add value to these processes”, concludes Fatouros.