Whether buying or selling, how can you make sure you’re getting the best deal and creating and safeguarding value for your organisation? M&As often fail because that expected value is not realised.
For corporates involved in an M&A situation, we work with finance teams – chief financial officers, financial directors and their wider teams – to help secure investments and enhance returns. That means offering a full range of due diligence services and widening the focus to areas often overlooked but critical to deal value, such as pension plans, employee benefits, intellectual property (IP), and credit risk, while leveraging the transaction liability products available from the insurance market.
De-risk Defined Benefit Pension Plans
As a seller, a DB scheme represents a potential drag on price, and while a buyer might be able to benefit from a reduced price, there could be future liabilities that make that discount less attractive in the long-term. Here are three key areas of consideration for anyone in a finance function looking to understand how a DB scheme could impact their deal:
- Understanding the risk exposure of retirement plans is essential. In an M&A situation, it’s vital to have comprehensive insight into the impact of retirement plan obligations on financial statements; funding requirements and the impact of these on current and future cash requirements; and, investment approaches and their level of risk.
- Whether buying or selling, the DB pension scheme will be a critical point of negotiation. It is vital that the pricing approach maximises bid competitiveness, while mitigating the potential for value loss post-deal due to retirement plan risk.
- The post-deal phase involves both managing and mitigating possible liabilities and looking at what value opportunities there might be, with considerations including liability management and settlement; reducing deficits and retirement plan costs; and investment strategy.
Find out more about how Aon can help de-risk defined benefit pension plans in an M&A deal.
Understanding True IP value
Whether on the buy or sell side, IP due diligence is often left to the lawyers, which misses the opportunity to fully understand the relative quality of the IP. It is why it is crucial to look at the commercial quality of the IP; know what IP the business has; how it is positioned; and how strong it is relative to its competitors.
On the buy side, it’s looking at the potential acquisition and helping assess whether the quality of the IP makes the target a good investment or not. On the sell side, it’s a much more detailed process to articulate how well aligned the IP is with the business, how strong it is relative to the rest of the market, and ultimately whether it’s a good investment or not for potential buyers.
Find out more about how Aon can help you understand the true IP value of the business you are buying or selling.
Take the Credit
There is a significant opportunity to use credit solutions to support the entire M&A lifecycle through the use of non-payment insurance, surety, and political risk insurance solutions. These can help to lower the cost of capital, provide off-balance sheet solutions for transaction-related demands for collateral, and enable short-term financing.
One area gaining traction is the use of surety bonds issued by credit insurers to meet the deferred consideration requirements of a deal. This offers both buyers and sellers the opportunity to take advantage of the availability of the cheaper cost of insurance capital versus bank capital.
Cash confirmation bonds are also attracting interest where UK takeover rules require a cash confirmation statement to be filed by a third party and included in the formal announcement of the transaction.
These tools illustrate the ability of the credit insurance market to help facilitate deals that might not have gone ahead or might have been executed on more onerous terms to buyer and/or seller. For corporates looking for effective and efficient ways to help manage payment flows and credit risk in an M&A transaction, credit solutions can provide dynamic and hugely effective tools.
Find out more about how Aon can help you understand how credit solutions can help your organisation buy and sell.
Enhancing Your Returns
Optimising balance sheets and using capital efficiently has never been so vital for businesses. In recent years, the range of insurance products available for corporates to help improve deal execution, reduce risk, and ensure a better use of capital has expanded significantly.
Products include:
- Warranty & Indemnity Insurance – covers losses from an unexpected or unforeseen breach of warranties
- Tax Risk Insurance – eliminates losses from a tax authority successfully challenging the expected tax treatment of a proposed or historic transaction
- Structured Credit Solutions – can be used to replace other financial instruments that may be used in a transaction
- Contingent/Litigation Risk Insurance – typically uses to avoid escrows or holdbacks, or to remove an obstacle to a transaction
Find out more about how Aon can help your business work with the insurance market in an M&A situation.