Corporate Australia's recent history is littered with evidence of the dangers implicit in merger and acquisition (M&A) activity. Transactions in the aviation and insurance sectors, for example, have reinforced that quality failures in the M&A due diligence process can have catastrophic consequences. No amount of financial engineering is going to succeed in turning undesirable asset/revenue streams into desirable ones.

Any potential M&A transactions require a due diligence review to address the imbalance between parties in terms of access to price sensitive information. However, due diligence itself is not fail-safe. Furthermore, the due diligence templates used by some organisations emphasise the legal and financial disciplines without paying due heed to risk management and insurance.

Substantial capacity exists to use non-collateralised capital from the insurance market in M&A transactions to help:

• Attain higher levels of certainty in what, by definition, is an uncertain environment
• Empower an entity's M&A team with knowledge of the cost of risk implicit in a transaction
• Achieve closure with more transparent and/or favourable terms

Examples of the transaction-specific insurance opportunities which exist and which can be used to assist in attaining closure include:

• Representations, warranties and indemnities
• Tax positions/options material to transaction pricing
• Historic/retrospective liabilities
• Pending litigation which is material to transaction pricing
• Legal opinions which are material to pricing or the future operation of a target entity - an example of this could be in the use/licensing of technology
• Environmental impairment

By using a broader and more complete due diligence drag-net, higher levels of certainty can be brought to any M&A transaction through:

• Avoiding unrecognised liabilities and potential cost aggravations
• Informing deliberations on pricing, deal content and architecture
• Smoothing completion and integration of the target entity

Our M&A specialists can provide the risk management and insurance skills and expertise needed to improve the certainty of transaction outcomes.