How Can Risk Managers Prepare for Spin-Offs and Divestitures
Aon’s Risk in Review 20238 shows 28 percent of senior executives in corporate development teams are focusing more on divestments and restructuring, with only 22 percent reducing the size of deals. As pressure to streamline business mounts from investors, divestments show organizations’ appetite to focus on their core offerings. This is resulting in major spin-offs and large acquisitions, shedding ‘non-core activities’ that burn capital.
After organizations review their portfolio, they have the opportunity to offload products that no longer have exclusivity. While production can be handed over to generics companies or CDMOs, organizations are increasingly opting to sell off business interests entirely through divestitures. These spin-offs often inherit insurance programs, as well as risk philosophy and appetite.
However, new business means new risk profiles, requiring a rethink of risk and insurance strategies and decisions on what risks can be retained and transferred. In this context, decisions on structuring organizational risk retention should be made, particularly as many life sciences organizations are sophisticated users of (re-)insurance captives. At Aon, we’re seeing organizations approach spin-offs in two ways either:
Lift and Drop
Copy the same processes from the old organization, then step-by-step, work through each item and adapt over time. This includes adapting insurance programs and risk assessments, tailoring everything to the new organization and building loyalty with teams and stakeholders already in place.
Reshape
A complete reshaping of operations prior to day one allows the capture of relevant data and insights from the former parent organization to shape the new risk financing strategy. However, this strategy requires clearly defined and differentiated brand and messaging from the offset. It needs time and capacity considerations to manage delivery within the deadline.
Conclusion
In the evolving life sciences M&A landscape, organizations must effectively manage, mitigate and allocate risk and implement effective insurance programs. Failure to do so may expose their business for years to come.
When involved in M&A and business transaction situations, risk managers can get ahead by prioritizing key insurances and defining clear operational targets that create risk transparency. Working with an experienced global risk partner from the earliest possible stage enables decisions to be made correctly the first time.
With structured planning, life sciences businesses can make valuable decisions from the very start of the process. Aon’s dedicated life sciences team works with clients across the industry to tackle risk and human capital strategies, supporting foundations for success across M&A deals.
