Jeff Bousfield
National Practice Leader - Communications, Media and Technology
As private equity (PE) firms work with their portfolio companies to help them grow and ultimately maximise returns, they will invariably need to manage a large degree of change – integration of bolt-on acquisitions, entering new territories or operational overhauls. This creates not only great opportunities but also certain circumstances from a risk and insurance perspective that need to be addressed.
The following three themes should be at the core of the risk and insurance strategy for any PE portfolio company:
Investors in portfolio companies can play a role in ensuring an insurance programme is in place that is fully enhanced to reflect the nature of PE backing. This should include:
New mandatory data breach notification legislation which will come into force in 2018 means companies will face new requirements and significantly higher fines of up to $1.8 million. Beyond this direct cost, reputational damage caused by a major breach could impact a portfolio company’s value, particularly if it occurs immediately prior to an exit.
Helping investee companies gain a clearer picture of their risk landscape will ensure appropriate protection for the business, and subsequently the PE firm’s investment.
Seek clarity on exposures faced by directors of portfolio companies
Even a high quality “off-the-shelf” directors and officers policy may fail to pick up on the nuances of PE ownership structure leaving individuals, including representatives from the PE firm, potentially exposed. We often see a lack of clarity in relation to issues such as:
Insurance is often not a high priority for investment teams when working with portfolio companies, however, by giving consideration to the above issues now, investors and management teams will be better positioned to optimise the upside of growth, whilst minimising the potential downside associated with an unforeseen event.
For more information on this topic, contact Cory Ormsby or Jeff Bousfield
Disclaimer: This is a general overview of the insurance issues. Please call us and ask for a copy of the insurer’s policy wording. We recommend you read the policy wording so you have an understanding of the policy terms, conditions and exclusions before you decide whether a policy suits your needs. Statements concerning legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal advice, which we are not authorized to provide. All such matters should be reviewed with your own qualified legal advisors.
Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) arrange the insurance and is not the insurer.
National Practice Leader - Communications, Media and Technology