Preparing for M&A Success: Why Architect and Engineer Firms Should Involve Their Insurance Broker Early

By Debbie Beebe

When considering a merger or acquisition, either you are doing the acquiring or you are being acquired, it’s essential to get your insurance broker involved at the onset to help protect your firm during M&A negotiations.

As a nation’s economy cycles, so does the level of mergers and acquisitions (M&A) activity. A design firm’s traditional growth strategies might include increased hiring, exploring other types of projects and clients, and opening offices in other markets. However, a merger or acquisition can often achieve the same type of growth and, usually, within a much shorter timeframe.

The most common M&A arrangements for A&E firms include:

• Asset Purchase
• Stock/Equity Purchase
• Merger

While these are the most common transactions, the parties to any M&A activity can establish the specific details and structure of their deal by contract. However, if not done correctly, an acquisition can have a drastic impact on a firm’s performance and significantly increase its risk. Firms need to fully understand what a merger or acquisition partner brings to the deal and whether the deal makes sense from financial, strategic, and risk  perspectives.

Involve your broker…now.

Purchasing a firm or being purchased can create uncertainty about liability for all parties to a merger or acquisition.  Involving your insurance broker at the preliminary stages of the transaction (prior to signing the letter of intent) can help you eliminate that uncertainty. Your broker can also assist with your firm’s due diligence and the structure of the liability provision in your agreements, and help you understand your insurance coverage options for managing your risk.

Often, firms don’t involve their insurance brokers until the conclusion of the transaction or even after it’s announced to the general public. That’s a mistake. Most firms wouldn’t enter into a transaction without consulting their lawyer or accountant; so why would a firm look to potentially expand its liabilities without first consulting its insurance broker?

Your professional liability insurance broker specializes in evaluating target firm liabilities and addressing any work-in-progress (WIP) or residual liability being assumed from the target firm. Including your broker early on allows an expert to participate in due diligence, negotiate the terms involving liabilities, and conduct a risk assessment.

One reason a firm may avoid discussing potential M&A activity with its broker is the strict confidential nature of the preliminary discussions; in larger transactions, firms are often subject to nondisclosure agreements (NDAs). However, firms can amend NDAs to specify  that certain parties, such as an insurance broker, can access the confidential information.

Our goal as your insurance broker is to make sure you have all the information you need to make informed decisions that are best for your firm.

For more information, visit our Architects & Engineers page or contact us here.

*Content courtesy of PLAN and AXA XL Communique.