Merger and Acquisition Due Diligence

Pinnacle performs insurance due diligence on a company being considered for acquisition, merger or divestiture, in order to evaluate the potential liabilities associated with the entity in question. In addition to identifying liabilities associated with the target entity, we can review the adequacy of the target firm’s insurance risk management program with regard to coverage terms, premiums and retentions, and report any gaps in coverage or uninsured or under-funded liabilities, all of which may affect the purchase price. Pinnacle can also report on the potential cost savings associated with program integration.

We can also determine the existence of accruals applicable to self-insured liabilities in addition to accruals required by SOP 87-1 (Accounting for Incurred-But-Not-Reported Liabilities) or ASC 450 (FAS-5).

The merger or acquisition process can be highly competitive and the winner tends to be the organization that knows the most about the target company. Insurance risk management should not be excluded from the due diligence process. Failure to identify uninsured liabilities and/or underfunded liabilities can be the difference between a highly successful and an unsuccessful acquisition. Our experience has shown that integrating the target company’s insurance risk management program into the acquirer’s can generate savings of 40% or more. In addition, the new combined organization may be able to consider risk-financing techniques that were previously not cost-effective, generating additional savings.

Insurance risk management needs to be part of the overall due diligence plan in order to eliminate surprises and to more accurately project savings post-acquisition.