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ARC: HOW MID-MARKET COMPANIES CAN GUARD AGAINST MERGER AND ACQUISITION RISKS

Team approach reduces the risks associated with mergers and acquisitions

A structured approach to assessing mergers and acquisitions that includes broad involvement by key business units can reduce the risks associated with closing deals, according to a risk manager who has been involved with many buyouts.

Speaking last week at Business Insurance's 2013 Risk Management Summit in New York, James R. Loughlin, director of risk management at Insight Portfolio Group L.L.C., the risk management services company for Icahn Enterprises L.P. in New York, said: “Whenever possible, if you can involve your key business unit, people such as risk management'' or the head of human resources “in these M&A strategies — or even divestitures for that matter — the better off you are.”

Broad involvement in mergers and acquisitions can put a company in a position to make better-informed decisions and makes it less likely that critical exposures will fall through the cracks, Mr. Loughlin said to an audience comprised mostly of corporate risk managers.

Mr. Loughlin offered key risk management questions companies should ask as part of their due diligence in scrutinizing deals. Among them is whether the target company has a formal risk management department and, if so, how robust it is.

Acquiring companies also should determine whether the target has an enterprise risk management program in place and whether risks are merely identified or if they are mitigated through insurance or other means. Knowing there's a process in place to address risks “should put the company one up in the acquisition strategy,” Mr. Loughlin said.

Other due diligence questions should include determining the risk exposures inherent to the target's industry, the target's loss experience and identifying the countries in which the target company operates.

Risk management also should be involved in the deal's purchase and sale agreement, Mr. Loughlin said. “This is another area where you have to involve risk management and not just bring them in at the last minute,” he said.

In mergers and acquisitions, “There are many aspects that the risk manager can look at and come up with solutions that often aren't thought about,” Mr. Loughlin said.

Asked how risk managers can be sure to get a seat at the deal negotiating table, Mr. Loughlin said, “I think you just have to show value again and again.”

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