Let’s Make a Deal: Reduce Investment Risk to Maximize Potential Rewards with Mergers and Acquisitions

Jeffrey Schwab April 25, 2012

Every day, mergers and acquisitions are making headlines across the globe. These transactions, which bring smaller companies together to make a bigger one that can rapidly grow in its sector, are a big part of many companies’ growth strategies.

They also can play a big role in those companies’ future fortunes. But in today’s mergers and acquisitions environment, there are rising inherent risks, especially in the evolving insurance and employee-benefit marketplace. As an example, insurance carriers are pulling back on discounts for workers’ compensation plans until loss history improves. Health-care reforms are creating uncertainty for employee benefit plans, especially when it comes to medical coverage.

“I would say there’s more risk out there because of what you may inherit in an acquisition, as it relates to what they were doing around health-care reform,” says Jeff Schwab, practice leader of the mergers and acquisitions and private-equity practice at Oswald Companies. “You also are just seeing a less buyer-friendly insurance marketplace. We are seeing that the property- and casualty insurance marketplace is getting a little bit more restrictive.

Schwab and his team work strategically with buyers to identify and solve transaction risk issues to maximize their potential reward. Oswald Companies completes about 50 transactions each year for companies with at least 20 employees.

“We can work with companies all the way from the due diligence to the acquisition of the company to the disposition of the company, and we can work on an individual basis or an overall aggregation strategy,” says Schwab. “We can take them all the way from cradle to the grave, if you will.”

Prior to a transaction, the M&A Group identifies the scope of risks and liabilities that could impact the transaction, including rising insurance costs and underfunded liabilities. Then, the team reviews existing employee benefits to develop strategies to mitigate assumed obligations. Finally, it assesses retirement, life insurance and executive compensation plans to promote long-term growth and enhancement to the company’s key employee plans.

In one instance, Schwab’s group discovered environmental concerns during a deal’s due-diligence phase. To solve the issue, his team helped craft a pollution legal liability policy and implement an environmental monitoring system in order to make the buyer more comfortable with the transaction.

“If we hadn’t raised the coverage issue, not only would the deal have not worked, employees might be working in a less-safe environment, which could have been a violation of (the Occupational Safety and Health Administration),” explains Schwab.

“We had specific expertise in the environmental area, and we were able to manuscript a coverage that would not have normally been available.”

Once the transaction takes place, the M&A Group develops loss reduction strategies by establishing financial targets for income-statement and balance-sheet protection. In addition, the team works hard to integrate diverse corporate cultures by delivering tailored solutions because employee issues are key to the success of any transaction.

The M&A Group boasts an open architecture with the elasticity to meet any client’s needs.

“We don’t have a set protocol or a rigid threshold, which allows us to be more flexible,” says Schwab. “The customers’ needs and issues are always dictating how we help them in a project, and our flexibility there allows them to get exactly what they need.”

For more information on managing the risk associated with mergers and acquisitions, contact me today.