Private equity failing on M&As

Private equity houses are missing deal opportunities in emerging markets due to cultural differences, says a new Aon report.

The report highlighted concerns from private equity houses about mergers and acquisitions between companies from varying cultures. 38% of respondents named co-ordination and processing issues as the major causes for concern.

The survey also highlighted a lack of attention to uninsured liabilities. Many private equity houses are not treating the insurance due diligence process as an opportunity to assess these risks effectively.

Other M&A barriers highlighted by respondents included regulation, political risk, highly competitive auctions and downward pressure on expected returns.

Marc Bennett-Coles, of Aon's mergers and acquisitions group, commented: “While this is an increasingly global business community, it is clear from our research that culture remains a significant barrier to M&A deals.

"There are, however, areas of risk that are easier to address, such as past liabilities. Risk analysis can help to identify and mitigate against these risks and a full insurance due diligence exercise should be conducted on a potential target.

“It is also interesting to note the number of respondents (50%) who discount the possibility of using transactional insurance as an M&A tool, even though the process has been streamlined and costs cut.

"The use of insurance capital remains worryingly under-explored, with many private equity houses unaware of recent innovation in risk transfer products now able to protect them.

“Sophisticated private equity houses should consider using insurance as a strategic tool to unlock their deal deadlocks and advantage themselves in the auction process during an exit.

"We believe that transactional insurance could play an increasingly influential role in M&A going forward.”