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Private Equity Solutions Working together to optimise results
Aon Strategic Advisors & Transaction SolutionsM&A Solutions
Risk. Reinsurance. Human Resources.
Private Equity Solutions 1
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We help you manage risks to optimise results
Invest01 Raise 02Invest
03 Hold 04Exit
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Working with you, every step of the way
01We understand the complexity of private equity and the importance of protecting fund
professionals in their multitude of roles – be it in the role of fundraiser, investor, manager or seller.
02We have a fully integrated offering supporting our private equity partners in all of their risk needs on both a local and global scale. We are experts in arranging comprehensive private equity fund liability insurance, performing insight-driven due diligence, developing tools to retain the best teams, structure transactional and prospectus liability insurance programs to facilitate your exits.
03We provide direct value
for private equity firms through insights derived from our (i) industry and product specialisation
(ii) data and analytics (iii) global experience, and
(iv) innovative risk solutions
04 We are committedto ensuring an optimal client experience and results. Our global market leverage gives you access to the best solutions and insurers.
Exit
Hold
Invest
Raise
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Working with Aon
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Our credentials
Global LeverageWe secure best price and cover as:
• #1 or #2 trading partner with every insurer globally
• Aon globally transacts more than $41 billion insurance and reinsurance premiums per annum
Bench StrengthOur dedicated European PE team comprises of:
• Dedicated transaction liability experts, dedicated due diligence experts across offices in Europe
• 23 global offices to provide local expertise
• 350+ dedicated M&A professionals globally
Experienced ProfessionalsOur M&A Solutions team are experienced and provide tailored advice:
• having delivered over 5,000 projects globally in the past 5 years
• as legally qualified transaction liability specialists
• 25+ years of service to corporate and private equity clients
• direct access to global industry specialists
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Raise
Protecting the Funds and Fund ProfessionalsIt is vital that your funds and the personal liability of your key officers are protected. It is equally important that investors in your funds remain committed and have confidence that their investments will yield a healthy return.
Insurance needs to be treated as a core asset of the fund—structuring adequate and tailored fund liability insurance is a key component of any fund’s risk management strategy, and a source of distinction from your peers in attracting investment. It is also critical that should a particular asset or transaction not deliver the expected outcome and disputes arise, the effect of this will be mitigated through your fund liability insurance which protects both your fund professional and your funds.
Key features of Aon’s Proprietary Fund Insurance Solution
Investigation costs coverage extends to any Insured Organisation
Broadest possible definition of Investment Advisory Services to accommodate all activities undertaken by the firm
Broad Insured and Insured Person definitions accommodate all group entities
Breadth
Flexibility The firm may utilise any law firm it wishes to defend an action
Recognition that if the firm chooses to move to new insurers, there is no dilution of policy coverage from a previous policy
Automatic new fund cover
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1 Insurance Due Diligence - Understanding the Risks We help our clients understand the risks associated with a transaction and develop solutions to protect the assets
and future earnings. We ensure that your acquisition is protected comparative to best practice and highlight areas where potential cost savings or coverage improvements may be realised to unlock value going forward.
Why carry out Due Diligence?
identification of target specific risks that could stall or terminate the deal and develop solutions to mitigate
assessment of claims experience and exposure to past liabilities
assess current insurance program’s suitability, coverage and cost
design & cost a fit for purpose go forward insurance program aligned to investment mandate
bankable report to get approval from banks and debt providers
design and implement 100 day action plan post signing
balance sheet protection
Preparation for sale:
filter insurance information, field questions and provide report to prospective bidders to expedite Q&A and bid process
design and cost stand-alone program for cost certainty in advance of carve out
arrange insurance run-off to protect fund and directors & officers from future liabilities and exposure
vendor insurance due diligence report that can be relied upon
speed up the sales process and timing
Buyer
Seller
Invest
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Valuable insights through industry and product specialists
We have dedicated insurance due diligence resources that understand the M&A process, and have deep expertise across general insurance, workers compensation, superannuation, life insurance and other employee benefits.
Few insurance advisers possess the level of expertise across as many different industries. Niche advisers are certainly at a disadvantage given the global scale and sheer resources required to field the expertise in so many different industry sectors. The following illustration highlights the number of global deals by industry sector we have supported between 2010 - 2014.
Manufacturing852
Personal & Professional Services368
Oil, Gas & Mining236
Wholesale53
Agriculture51
Automotive133
Aviation117
Investment, Insurance, Finance & Banks360
Food & Beverage195
Transportation Services & Shipbuilding161
Paper & Packaging90
Power, Utilities & Renewables79
Printing & Publishing52
Real Estate118
Restaurants50
Retail157
Software & Technology222
Health Care280
Infrastructure128 Life Sciences/Biotech
97
Chemicals129
Communications105
Construction189
Defense Contracting26
Educational, Nonprofit & Government69
Electronic & Electrical Equipment125
Entertainment & Hospitality147
Energy353
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Insurance Solutions
Buy-side Improvements Sell-side Improvements
Warranties & Indemnities
• W&I Insurance • Achieve lower purchase price (eg. trade lower purchase price for elimination of an escrow)
• Achieve more certain deal protection than standard escrow/indemnity cap through insurance equivalency
• Shut down auction process in favour of buyer by accepting seller reps “as is”
• Provide W&I insurance for “public style” deals through insurance equivalency
• Eliminate or sharply reduce escrows
• Increase speed of deal execution
• Close out end-of-life-fund
Transaction Specific Issues
• Tax Insurance
• Litigation Insurance
• Environmental Insurance
• Contingent Risk
• For “deal-breaker” issues ring-fence existing issue with insurance to achieve an acceptable level of exposure
• For major issues having a material effect on value:
– Ring-fence with insurance to determine a known worst-case scenario
– Determine if a pricing arbitage exists between insuring the outcome and the purchase price reduction imputed by valuing the risk
• Reducing perceived risk by buyer to incentivise more participants into the auction
• Quantify the worst-case economic exposure of a known issue with an uncertain outcome to reduce leverage of buyer side to seek discount against specifically identified risks
How deals are facilitated through insurance
2 Transaction Liability Solutions - Eliminating Deal Obstacles Aon’s M&A products and services enable our private equity clients to do deals confidently and with enhanced
economic terms. We help our private equity clients invest and exit investments by transferring M&A risks to the insurance market through a number of different solutions. These solutions are:
A tool for sellers – enables a clean exit for sellers with no trailing liabilities, expediting the distribution of proceeds to investors. We have seen the increasing pro-active use of TL insurance by sellers in exit situations, with W&I or Tax policies being offerded as the “stapled” solution to deal issues in the sale process.
A tool for buyers – less common now, but TL insurance can allow buyers to enhance their bids in an auction scenario or to obtain warranty protection where sellers are unwilling or unable to provide the post-closing recourse required or if they are financially distressed or are a group of individuals.
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Hold
Cost of Risk vs Return on InvestmentOur aim is to help private equity firms to identify, understand and manage the cost of risk within portfolio companies, so as to maximise the return on
investment upon exit
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1. Understanding your costsThe key to effective risk management is understanding an organisation’s risk profile and consequent needs and then using insurance as a financial tool. Aon uses a formula to measure Total Cost of Insurable Risk (TCOIR). This is the full cost incurred by a business (in addition to the obvious premium costs) to deliver a risk management strategy. It provides a sound basis on which to then manage, control, measure and compare insurable risk costs and performance.
2. Understanding your risks As you invest in portfolio companies with different risk profiles and sector exposures, you may become exposed to a myriad of risks which, if realised, could cause a catastrophic loss to the portfolio company’s balance sheet and potentially expose fund professionals to claims of mismanagement. Assessing risk exposures ahead of an acquisition as part of a due diligence process will better equip and position the business to proactively plan for the management and/or transfer of such risks.
We specialise in assisting businesses establish mature risk management programs to protect their balance sheet and ensure that the board and management has discharged its responsibilities in managing risk.
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3. Managing the portfolioThere are a number of ways we can support our private equity clients manage their portfolio companies. We provide below three distinct examples being:
Risk identification / mitigation;
Risk transfer efficiency; and
Emerging risk
Optimising human capital management
Emerging Risk – Network Security & Privacy (Cyber)
Cyber risk is the single most significant emerging risk facing organisations. Quite apart from the cost of dealing with the financial consequences of a serious cyber incident or data breach, the damage to an organisation’s brand and reputation can be crippling.
Almost every week another business is in the headlines for the latest data breach or cyber security attack. A cyber-attack or data breach can take many forms; from deliberate attacks to technological negligence. The perpetrators range from organised crime groups to competitors, and even disgruntled employees.
Private equity firms – unique exposures
Inherent privacy and security issues in M&A transactions, both at the due diligence stage and consideration around specific representation and warranties set out in the SPA
Country specific privacy and data protection laws for transactions involving business operations or related entities other jurisdictions
A significant amount of confidential data on target entities and their portfolio companies
Significant risk of brand and reputation damage
Common misconception that cyber risks are already covered by existing insurances
Increased vulnerability to breaches caused by former employees, including departing senior management eager to retain access to client files/data
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Make moneyRealise untapped potential of your peopleWe enhance the value of a portfolio company by:
delivering a harmonised organisational structure with market aligned compensation and benefits programs
attracting and retaining key talent
driving engagement and productivity
Save moneyMitigate risk in your workforceWe mitigate people risks by:
identifying and quantifying liabilities and people risks
• removing replication and identifying cost saving opportunities
to ensure the deal price and warranties are adjusted appropriately
to facilitate swift deal completion
Optimising Human Capital Management
Attract and retain talent & incentivise business performance
Leadership
assess and develop leadership capability to successfully deliver change
due diligence of leadership team effectiveness and assessments of succession risks
Culture
assessment, organisational alignment and cultural change strategies
Productivity and Reward
attract, retain and positively drive employee engagement during change
identification of performance and retention risks for consideration in the transaction value
optimised and market aligned pay and incentive structures to achieve retention and productivity growth
Guidance and Support
project management and transition governance oversight
effective communication to promote impacted employee financial wellness
access to independent financial advice
Mitigate People Risks & costs
Employee Benefit Plans and Superannuation
identification of potential trailing litigation and regulatory issues
actuarial advice to quantify and mitigate defined benefit and leave liability risks
benchmarking review of vendors
Workers’ Compensation & Safety
compliance review
optimise insurance spend
Risk Culture
assessment and development strategies to drive effective business decision making and mitigate compliance and reputational risks
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Exit
When it comes time to diverse portfolio companies and realise returns, we work side by side with our private equity clients to facilitate efficient and clean exits through insurances that support both private and public sales.
Private equity firms choose to partner with Aon when planning for an exit given our ability to work in ‘deal time’ with a team of former M&A lawyers who understand the dynamics of a transaction. Given the breadth of offering and expertise and the size of our teams, Aon also has the ability to support dual track processes and large, competitive auctions requiring multiple transaction trees.
Exit Risk Solutions
• Insurance coverage and cost certainty
• Ring fences past liabilities
• Expedites the Q&A process
Vendor Due Diligence
• Ensures competitive auction
• Expedite the sale process
• Clean exit for seller
Transaction Liability
• Protects fund’s return on investment
• Protects personal assets of fund professionals
• Access to law firm of choice to protect your reputation
Protecting Fund & Fund Professionals
• Protects all deal participants
• Dedicated limit for IPO representations
• Upfront coverage and cost certainty
IPOs
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Risk. Reinsurance. Human Resources.
About Aon Aon plc (NYSE:AON) is a leading global provider of risk management, insurance brokerage and reinsurance brokerage, and human resources solutions and outsourcing services. Through its more than 72,000 colleagues worldwide, Aon unites to empower results for clients in over 120 countries via innovative risk and people solutions. For further information on our capabilities and to learn how we empower results for clients, please visit: http://aon.mediaroom.com/
© Aon plc 2016. All rights reserved.The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate profes-sional advice after a thorough examination of the particular situation.
aon.com
FP ASATS/Oct2016/028
FSG0004A 1115
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