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Risk Management Pitfalls in Mergers and Acquisitions

Legal liabilities have the potential to derail M&A transactions. Asking tough questions about possible exposures is key to the due diligence process; targeted insurance can be key to mitigating risks.

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Many companies are looking at merger and acquisition (M&A) activity as a wise way to put their cash to work. Before they move forward, however, corporate executives need to be aware of some dramatic shifts in the global landscape for strategic transactions. Compared with a decade ago, there is greater potential today for unseen and underappreciated risks that could hinder an otherwise sound merger or acquisition.

In the aggressive timelines that companies often adopt for the closing of transactions—which are more compressed now than they were in the past—due diligence may be abbreviated. This accelerates the M&A process but also increases the risks that the acquiring company will not fully identify the target company’s historical and ongoing liabilities. Among these liabilities are environmental liabilities, exposures faced by directors and officers, and other legacy exposures.

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