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Private equity buyouts create risk challenge :Panel

Posted On: Mar. 15, 2007 12:00 AM CST

DUBLIN, Ireland¬óRisk managers are facing a new breed of challenge in the era of private equity acquisitions, according to a panel.

Speaking as part of a panel addressing the issue of "Killer Risks", at the Dublin International Insurance and Management Assn. conference in Dublin, Republic of Ireland, Thursday, Geoff Taylor, director of risk management at for Nike Inc.'s Europe, Middle East and Africa region and chairman of the Assn. of Insurance and Risk Managers, said that risk managers working at companies that that have been acquired by hedge funds, for example, face different sort of challenges.

"For businesses like ours [Nike, Group Danone and Tetra Laval] our job is to ask what, 'what is a resilient business model to ensure that we're still in business 10, 20, 30 years down the line," he said.

Switzerland-based Paul Taylor, head of group risk management and insurance at Tetra Laval, agreed that the risk profile for companies that had been subject to a private equity bid, was not the same.

"They lay off risk because they can raise capital. Their objectives are very different: they're looking at the short- to medium-term. They want to achieve the maximum value of the company and then get rid of it," he argued.

Thierry Van Santen, head of risk management at Group Danone in Paris , said that private equity takeovers did not pose a threat for companies as a whole, because the board works for the shareholders. He said that the greatest risks for large corporates related to their governance and the need to ensure that the board was not acting in self-interest, and to regulation and compliance issues. "There are also long term risks from environmental pressure, such as global warming," he said.

All three speakers agreed that for larger companies at least, the insurance industry was failing to address all the needs of risk managers.

"The market has failed major corporates. An incident occurs, they withdraw cover only then to reissue it in a different guise later on. It dilutes the market because these major corporates, which are generally managing their risks well, take their money out of the market, and take on their own risk," said Nike's Mr. Taylor.

Mr. Van Santen also commented that he was, "sceptical about the utility of the decision to buy insurance," while Tetra Laval's Mr. Taylor also added that he wasn't sure there was even the capacity in the market to respond to a real insurance risk incident anyway.