PE Firm Uncovers $300K in Hidden Risks with Target Acquisition
Understanding insurance risks is an essential part of any deal-related due diligence. A private equity (PE) firm hired Hylant to perform a quality of risk study to help it understand the potential risks and insurance-related costs of a planned acquisition before the deal was signed.
They were glad they did.
Challenge
A PE firm was preparing to purchase a residential roofing company. The roofer participated in a group captive insurance program, making it difficult for the PE firm to understand what their insurance run rate for the roofing company would be after the sale. They hired Hylant to help it gain visibility into possible issues.
Solution
Experts from Hylant’s construction, captive solutions and M&A practices performed a quality of risk analysis on the proposed acquisition. They made the following discoveries:
- The captive had underreported exposures for at least two consecutive years, understating the roofing company’s cost of workers’ compensation, general liability and professional liability insurance by $282,800. When annual insurance audits identified this underreporting, the roofing company had to pay the amount due within 30 days, a cash flow challenge. Had the exposures been appropriately reported, the roofing company could have paid monthly installments throughout the year.
- The retail broker for the captive had charged the roofing company $50,000 in undisclosed broker commissions, which was not allowed under state law.
- Additional savings were identified when it was discovered that the roofing company qualified for but had not used a contractor credit. Doing so could have reduced its workers’ compensation insurance costs by $35,000.
Having the right insurance due diligence consultant on your deal team can help you maximize the value of your merger or acquisition.
Results for the Client
$282,800 Identified
Payment due within 30 days of audit bill receipt for underreported exposures
$50,000 Identified
Broker commissions illegally charged to the target company
$35,000 Identified
Potential savings of which the target company was unaware
Trusted Advisors
Hylant team members are ready to advise you and help you confidently address your needs.
Kip Irle
Global M&A | Transaction Solutions Leader
Chicago
Casey Johnson
Managing Director - Transactional Risk
Grand Rapids
Warren Philipp Jr.
Managing Director - Transactional Risk
Columbus
Michelle Molnar
Managing Director - Due Diligence
Toledo
Rachel Dobbs
Client Executive
Orlando
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