Magazine article Risk Management

Changes in the European M&A Scene

Magazine article Risk Management

Changes in the European M&A Scene

Article excerpt

Chris F. Best is editor of Foresight, a London-based insurance and risk management journal published by Risk and Insurance Group Ltd.

After 16 years of deliberation, an important building block in the construction of a single European market was put into place last December. The Council of Ministers finally agreed on a community merger regulation giving the European Commission exclusive rights to regulate mergers and acquisitions within the community.

The new rules, which went into effect Sept. 21, stipulate that the commission must approve all largescale mergers. As the implications of mergers and acquisitions are now among their most pressing concerns, risk managers are watching the situation closely. This may be because few risk managers are in close contact with their corporate development directorates and even fewer are given an opportunity to contribute to the appraisal process.

While few acquisition negotiations flounder due to the lack of insurance coverage, Brian Pountney, risk manager of Bass PLC and chairman of the Association of Risk Managers in Industry and Commerce, said at a recent conference that the degree of risk assumed, if properly appreciated, might produce different outcomes.

Mr. Pountney offered some observations on the matter. First, if there is interest in installing a risk management program in an acquired company where none previously existed, do it without delay. Second, if risk management is a new requirement, it will be more easily accepted. Third, if little attention was given to loss prevention in the past, bringing the new entity up to group standards can be costly. That cost, he said, should be part of the acquisition viability study. Finally, if advisers and auditors are used to support the acquisition, make them responsible for their actions by requiring adequate professional indemnity coverage.

Mr. Pountney also explained that when a company makes an acquisition in the same industry, there may be a tendency to integrate factories and warehouses and concentrate production in more limited resources. These strategies, however, may make the company susceptible to market-share loss. He advised risk managers to make sure the dangers are fully understood in the boardroom and to include without delay members of the acquired company in corporate planning strategies.

Risk managers should also consider including the new entity in the acquiring company's directors' and officers' program, he said, because merger and acquisition activity usually stimulates claims. …

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