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French risk managers shut out of many M&A deal discussions


NANTES, France—French corporations often neglect to include risk managers on teams negotiating mergers, acquisitions and divestitures, an omission that can have deal-breaking consequences, according to a panel of experts at this year's gathering of the Association pour le Management des Risques et des Assurances de l'Entreprise.

"Many factors could cause a deal to fail in today's environment. Deals are more complex, competition is more and more intense, and risk of loss and litigation is higher than ever," said Humbert d'Autichamp, managing director of Marsh's Private Equity and M&A Practice, a division of Marsh Inc.

Mr. d'Autichamp was speaking during a panel discussion at AMRAE's conference in late January.

Mr. d'Autichamp said recent French and European legislation and regulations require more complete disclosure of risks and insurance coverage to counterparties in a transaction. "Risks can impact every aspect of a deal, and neglecting aspects of risk management and insurance can transform a good deal into a bad deal," he said.

The panel discussed barriers that risk managers face. Frederic Du-ponchel, president of Accuracy, a Levallois-Perret, France-based unit of Aon Corp., said that "in a big transaction, the allegiance of certain key management personnel can shift from the selling company to the buying company. This poses a risk of loss of critical information, such as sales and contract information, and other company secrets."

Ironically, this risk could contribute to the risk manager's exclusion from the negotiating team, he said. In fact, "risk managers have an important role to play," he said.

The risk manager can keep track of company secrets and also the many players involved in a deal, such as banks, auditors, consultants, lawyers and intermediaries. "The risk manager can analyze potential conflicts and divergences of interest," said Mr. Duponchel, who noted that three out of four such deals fail in France.

In fact, risk managers are often left out of the picture until it's too late, said Mr. d'Autichamp.

A common scenario is that the risk manager receives a telephone call the night before the deal's completion is announced, asking for assessment of the target company's insurance coverage. "The risk manager's expertise has to be consulted much earlier," he said.

Heloise Husson-Dumoutier, underwriting manager for mergers and acquisitions insurance at Paris-based AIG Europe S.A., said the risk manager should get involved early on in a deal at the due diligence disclosure on the target company's insurance, or when the selling company cancels insurance contracts on the company it is selling.

"It's important to ensure that the subject of insurance is part of the beginning of negotiations on selling or acquisition contracts," she said.

Ms. Husson-Dumoutier discussed what she called transactional risks, noting that specialized insurance coverage exists to eliminate certain obstacles, to maximize the selling price or the value of a deal to a buyer.

For example, a buyer's policy could cover losses resulting from inaccuracies in the seller's coverage declaration. A seller's policy could cover the seller for buyer's demands resulting from inadequate coverage or incorrect declarations of coverage. Another policy would allow transfer of a particular environmental risk.