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ACE white paper examines M&A risk management relative to environmental liability issues

ACE USA, the US-based retail operations of the ACE Group, has released a white paper exploring the insurance and risk management issues that global companies and private equity firms confront when seeking strategic merger and acquisition growth opportunities in the marketplace, in particular the ever-expanding and stricter environmental liability laws and regulations.

Such liabilities encompass a broad range of perils, including pollution, contamination, mould, hazardous waste, and toxic chemicals in water, air, or on land. Identifying these exposures, and assembling an effective insurance strategy to transfer environmental liabilities, is a vital element of the M&A transaction process.
“M&A Risk Management: Global Environmental Liability” was authored by Seth Gillston, senior vice president, ACE global mergers & acquisitions industry practice; Scott Meyer, executive vice president, ACE professional risk; and Jon Peeples, vice president, ACE environmental risk. Their new white paper addresses global M&A and environmental liability trends in the context of exposures for directors and officers, and examines ways to effectively manage and transfer these risks.
Although the rate of global mergers and acquisitions has slowed in recent years, M&A experts believe an uptick is forthcoming.
Gillston says: “Certainly, for those companies with strong balance sheets, access to inexpensive debt, and superior working capital management practices, M&A will remain a core part of their strategic growth priorities, both domestically and abroad. Companies seeking a stronger foothold in emerging markets — particularly within those countries that have liberalised foreign ownership rules — will continue to pursue M&A as a means of entry. In doing so, they will confront compliance with a patchwork quilt of constantly shifting environmental laws and regulations.”
In addition, Peeples observed that there are thousands of environmental regulations pending approval from legislators and regulators around the world.
“These evolving legal and regulatory regimes pose compliance risks for multinational companies acquiring and/or divesting enterprises, as they require more in-depth due diligence for a target company’s past and present environmental liabilities,” adds Peeples.
At the same time, Gillston says: “Directors and officers, along with risk managers who are considering their companies’ and their own post-M&A-transaction environmental liabilities, should aspire to leave no ambiguities on the table.”
Meyer adds: “The threat of share price volatility in the months after a deal closes is typically higher — possibly inciting shareholder or subsequent-acquirer lawsuits against directors and officers, for misrepresentations, breaches of fiduciary duties, or violations of the securities laws. This enhanced financial exposure argues for accessing the services provided by an experienced D&O insurer. Such carriers have a one-stop shopping approach to insuring environmental risks and other liabilities, inherent in a merger or acquisition. They offer the required responsiveness to facilitate the closing of transactions within set timetables, thus minimising the possibility of an emergency of unexpected and uninsured post-transaction liabilities. As M&A activity picks up, as anticipated, and more countries enact broader and stricter anti-pollution laws, such liabilities are sure to increase for directors and officers.”

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