Moving at the Speed of M&A: Insurance Due Diligence

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Time kills all deals, as the saying goes. Serious buyers and sellers view quick execution as essential to the likelihood of closing. If the other side is eager to move but your deal team is inefficient, don’t be surprised if they shift attention to another opportunity.

That doesn’t mean unrealistically rushing what needs to be done. When it comes to insurance due diligence, it means having a partner with a process for reviewing, analyzing and reporting as efficiently as possible. In other words, a partner capable of moving at the speed of M&A.

What should your company look for in that partner? Expertise, of course. You don’t want to hand this critical task to someone’s new kid. You want a team of specialists who know the industry and its inherent risks. It’s even better if those specialists work quickly, efficiently and collaboratively. That’s where the most important factor comes in: a proven, consistent process for evaluating risk-related matters.

Process Is Important

Process matters more than many companies realize. You may have an insurance partner that delivers top-quality services, but if they lack a repeatable and consistent process, it’s likely to take significantly more time, and we all know what time does. Not having a standard process also increases the potential for forgetting to examine a specific issue.

When your insurance partner has developed a repeatable process for performing due diligence, it tells you something important: they’ve done this before. A proven process suggests a long record of quickly delivering the information and confidence that a company preparing for a transaction needs. When you overlay that process on a foundation of high-quality services, your risk management partner—and, by extension, you—can better manage the surprisingly large number of factors and areas needing diligence.

Instilling Confidence

Just as manufacturers have embraced concepts such as Six Sigma that force them to identify impediments to quality and productivity by examining every process, a thorough insurance due diligence process will explore every aspect of a company’s efforts to identify and manage internal and external risks. Knowing that a company has been reviewed by an insurance partner with a comprehensive process gives private equity firms and other potential acquirers greater confidence that the risk doesn’t impede the value of the transaction.

It’s like what investors look for before investing in private equity funds. They expect to see clearly defined processes for evaluating and screening potential transactions, how control of the acquired company will be transitioned and how the acquisition will be managed to ensure it delivers the expected ROI. Above all, investors value consistency and predictability, along with data that are easily compared.

Jumpstarting Productivity

What happens when an insurance partner lacks a consistent process for assessing transaction-related risks? They must start from ground zero every time, figuring out precisely what they need to review before they can begin work. That ramp-up takes significant labor (for which you may be paying), reducing the acquirer’s ability to act quickly. It can also lead to inconsistent results from transaction to transaction.

Compare that to what happens when a client asks a risk consultant like Hylant to manage the risk component of their due diligence. We’ve assembled a team whose members know precisely what needs to be done, with every team member following vetted processes and focusing on their specialties. That means they’re productive from the first hour. In addition to reducing the time it takes to obtain the information the client needs, using an identical process generates comparable data. If a client is trying to decide between three similar targets, they work from a clear basis of comparison rather than a rat’s nest of data points.

Informing Decision-Making

Another sign of an effective process is that it delivers the appropriate information for everyone who needs it. Your no-nonsense CEO asks you the same question every day: Are there any red lights to prevent closing? She doesn’t want a ten-minute report on finances. Your CFO will dive deeper, but with his current to-do list, that might mean no more than an hour focused on the pro forma total cost of risk. Then there’s the risk manager, who might view studying all policy details as a fun way to spend a weekend.

Three critical stakeholders, all with remarkably different wants. A well-designed process allows an insurance partner to deliver information to everyone simultaneously, tailored to the wants or needs of each. Your risk management consultant should ensure the CEO automatically gets the 30,000-foot view, the CFO can study the analyses, and the risk manager can explore the policy details at leisure. Everyone gains the confidence they need to make critical decisions.

Earning Trust

Companies put their complete faith in their most trusted advisors, like their attorneys and CPAs. The right insurance risk management partner will earn similar trust when they demonstrate specialized expertise and a process that consistently gets the deal done more quickly. Once you have that working relationship and expertise on your team, you’ll never settle for less.

To learn more about how Hylant’s M&A and Transaction Solutions team can help you, visit www.hylant.com/MATS.

Related Reading: Is Your Business Taking Enough Risk?

The above information does not constitute advice. Always contact your insurance broker or trusted advisor for insurance-related questions.