Tomorrow's Manufacturers – Are You in Need of a Change in Course?
Manufacturers are once again facing an evolution for survival against today’s backdrop of economic, social, and political change. Economic slowdown around the globe, Brexit, and the continued uncertainty around trade agreements and protectionism remain in the minds of many. As companies struggle to achieve profits, many are altering their business models and we are witnessing an increase in acquisitions, spin-offs, and joint ventures for manufacturers to stay relevant.
The manufacturing industry is already an investment heavy sector. Investment funding for new or upgraded equipment, or for increased investment in research & development, can strain a balance sheet. As manufacturers move towards adopting digital technologies within their value chains to improve efficiency and reduce costs, creating new business models to drive a competitive advantage will push leaders to consider their existing structures.
Manufacturers are revisiting business models and are increasingly divesting their non-core or under-performing assets, while looking to acquire growth through new technology or acquisitions in niche sectors. Mid-market businesses are increasingly being acquired by larger conglomerates that have the global platform and routes-to-market to leverage new technology or specialised products.
WHAT ARE THE RISKS AS YOUR ORGANISATION CHANGES SHAPE?
Companies embarking on any mergers and acquisitions process need to consider a number of key risk issues. Failing to have an appreciation of the risks associated with a transaction can leave your company exposed to unforeseen legacy liabilities and costs.
Outlined below, are three key risk and insurance questions a buyer should think about when considering an acquisition:
- Are there any gaps in the target company’s insurance programme?
- Are there any hidden costs that may affect the purchase price? For example, material uninsured losses, self-insured losses, capital expenditure requirements, etc.?
- What is the protection the seller is proposing for its warranty and indemnity exposure under the draft Sale and Purchase Agreement (SPA)?
Conversely, it’s important to also consider the key risk and insurance questions a seller keeps in mind when considering a divestment:
- Are there any “red flags” that may result in purchase price adjustments or bidders walking away from the transaction?
- Does the SPA reflect the seller’s strategy for dealing with historic liabilities?
- Have you considering using Warranty and Indemnity insurance or Specific Tax Risk insurance as means to exit the sale with minimal post-closing warranty and indemnity liability?
Getting an acquisition or a divestment right can be game-changing; getting it wrong can be costly and may ultimately threaten any value derived from change.