Magazine article Risk Management

Navigating a Successful Merger: How Aon and Valley Oak Joined Forces

Magazine article Risk Management

Navigating a Successful Merger: How Aon and Valley Oak Joined Forces

Article excerpt


Mergers and acquisitions (M&A) are on the rise. Capital, competition and a lack of organic growth opportunities have driven M&A activity in recent years and industry experts expect the trend to continue.

Yet, although M&A's have played a significant role in corporate growth strategies, such an undertaking must be approached with caution, expertise and due diligence, because while M&A activity may be high, success rates are not. One-half to two-thirds of all ventures perform poorly or fail outright. As a result companies that are beginning to identify and court potential targets must understand what makes these endeavors successful and how to avoid the common pitfalls.

The recent merger between Aon and Valley Oak Systems can serve as a useful example for other companies that may be undergoing their own M&A process.

Expanding the Distribution Channel

One of the most critical factors in M&A success is selecting the right company. Three years ago when Valley Oak Systems (VOS) first started looking for strategic business partners, being acquired was the furthest thing from management's mind. "We weren't shopping the company around but we were open to an acquisition if the right factors were in place," said Randy Wheeler, founder and CEO of VOS.

Founded in 1994, VOS, based in San Ramon, California, has gradually established itself as a leader in claims management software. Demand for its flagship product, a browser-based claims system known as iVOS. quickly drove company growth and nationwide expansion, which had historically maintained a growth rate of 30% per year. Overtime, however, this rate was becoming more difficult to sustain, so VOS began looking for potential partners.

Aon Corporation was one of the potential partners VOS soon identified, as it targeted the same audience but sold different products and services. A Fortune 250 company, Aon is recognized as the largest pure placements insurance broker in the world. The company has a widespread global network of more than 500 offices in 120 countries providing services and solutions in insurance and reinsurance brokerage, risk management and human capital consulting.

"We recognized that Aon could play a critical role in our growth strategy," said Brian Mack, vice president of sales and marketing at VOS. "Pretty quickly, we saw the potential for more than just a partnership and began discussing the possibility of an acquisition."

In addition to its more well-known services, Aon also has a technology solutions division, which began operating five years ago. In this short amount of time, Aon eSolutions Group has experienced tremendous expansion, growing 25% a year by offering various risk management tools. Despite the early success, Aon wanted to broaden its claims management offerings. "Rather than build a claims system from the ground up, we scanned the market for a company with the right technology," said Kathy Burns, managing director of Aon eSolutions Group. "It didn't take long to zero in on Valley Oak."

Pre-Acquisition: The Due Diligence Checklist

Once Aon had identified VOS as a potential target, the company relied on its internal expertise in the M&A arena. Within the company, M&A experts had developed a 360-degree due diligence platform to identify any problems or liabilities that could potentially affect a buyer's bottom line.

By using this checklist, VOS was identified as a potential target acquisition, and the first factor Aon looked at was its financial and operational performance.

"When Aon asked to look under our hood, we knew we would easily pass any type of litmus test they put us through," said Wheeler. "They wanted to closely observe our internal workings, so we showed them everything. As an entrepreneurial company, our internal operations were highly optimized for efficiency and effectiveness, so there was really nothing to fine tune. …

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