Case Study: Mergers and Acquisitions (M&A)
A target company’s accruals for retained losses did not appear to be consistent with the historic loss experience. The company in question maintained that its accruals were accurate and were based on reports from its outside actuaries. There was substantial uncertainty regarding the quality of earnings, making it difficult for the buyer to confidently value the company.
Marsh reviewed the target company’s actuarial report and found that it was both outdated and being misinterpreted by the target company. Marsh & McLennan Companies’ actuaries carried out an independent review to determine the appropriate accruals for retained losses.
This review found that the annual accrual for retained losses was short by a substantial amount which reduced the EBITDA and resulted in a reduction of the purchase price for the client.