RC: To what extent have M&A deals become riskier in recent years? What have been the main factors behind this trend?

Fenwick: We do not perceive there to have been an increase in the risk profile of M&A deals in recent years but have certainly observed – and experienced – an increase in the number and frequency of breach of warranty claims in the past five years.

Kotz: Sources tell us that in the M&A market, the dollar value of mergers is up, but the number of deals is down. There have been a few very large deals, but in most cases, folks are proceeding with caution. CEOs and boards just do not want to take on risky deals in this economic environment. In the old days, private equity firms rushed to acquire companies to take advantage of the credit bubble, and chief executives wanted to take their companies private to cash in on profits. These days, deals are more about building the companies than making a quick buck. Economic and regulatory uncertainty can make deals more risky.

RC: In your opinion, do acquirers pay enough attention to identifying and assessing risks during the deal process? How critical is this in the current economic environment?

Kotz: While I believe acquirers have become more aware of possible risks, there are still occasions where the potential ‘value’ of an acquisition skews the need for clear identification of risks. In an economic uncertain environment, the process of risk assessment is critical to a determination of whether the deal makes financial sense.

Apr-Jun 2013 Issue

AIG Australia Limited

Berkeley Research Group, LLC