The Role of Risk Management in M&A and Divestitures

In this section:

Plan to Acquire or Divest Assets Within the Next 12 Months | Proactive Assessment of Most Critical and Emerging Risks Through M&A and Divestiture Processes

Few, if any, dealmakers foresaw the events of 2020. The abrupt opening and closing of parts of the economy and the human cost of the pandemic have had an acute impact on companies. Amid the upheaval, corporate investors have had to reappraise their strategies for M&A and divestitures and determine the best course of action moving forward.

Against this backdrop, this year’s Global Risk Management Survey includes a new section that examines whether the overall elevated risk outlook has led to increased involvement from risk management departments in M&A and divestitures.

The results show that most companies across all industries and sizes still do not proactively assess their most critical and emerging risks as part of the deal making process, likely because risk management is generally not an integral part of the planning processes for M&A and divestitures. This lack of risk oversight of corporate deal making leaves much room for improvement.

Plans to Acquire or Divest Assets Within the Next 12 Months

Nearly one-third of respondents across all regions did not know if their company planned to acquire or divest assets within the next 12 months. This lack of knowledge appears across respondents irrespective of company size, indicating that risk professionals are not as closely aligned as they could or should be with the core strategic decision makers inside their organizations.

Meanwhile, 41 percent of survey respondents across all regions say their company plans to acquire or divest assets within the next 12 months. This finding largely aligns with those published by Aon in Risk in Review 2020-21: Global M&A and Transaction Solutions. According to this report, which is based on a survey of 50 senior executives from corporate development teams, private equity firms and investment banks, over half (52 percent) believe that deal making will stay at similar levels or increase somewhat over the next 12 months.

Plan to Acquire or Divest Assets Within the Next 12 Months, by Region

Plan to Acquire or Divest Assets Within the Next 12 months, by Revenue (in $)

Plan to Acquire or Divest Assets Within the Next 12 Months, by Industry

Proactive Assessment of Most Critical and Emerging Risks Through M&A and Divestiture Processes

Across all regions, 53 percent of respondents said their company always or sometimes proactively assesses its most critical and emerging risks as part of the deal making process. More respondents in North America (59 percent) than in any other region said their company always or sometimes takes this action. This finding is in line with the general perception that North America is more litigious than other regions and that doing business there creates a heightened risk profile.

The vast majority (81 percent) of respondents working for the very largest companies (those with over $25 billion in revenues) said their company always or sometimes proactively assesses their most critical and emerging risks during acquisitions or divestitures.

Proactive Assessment of Most Critical and Emerging Risks Through M&A and Divestiture Processes by Region

Proactive Assessment of Most Critical and Emerging Risks Through M&A and Divestiture Processes by Revenue (in $)

The survey results show that some industries are much more likely than others to always or sometimes proactively assess their most critical and emerging risks as part of their M&A and divestiture processes.

At the high end, 78 percent of respondents working in private equity and 71 percent working in life sciences say their company always or sometimes takes this action, compared at the low end to 40 percent working in retail and 46 percent working in transportation and logistics. On average, 36 percent of respondents say their company always takes this step; another 17 percent say they sometimes do. Since risk is a key driver of many divestitures in particular, it is surprising that only a handful of industries seem to place great importance on it during the deal process.

Proactive Assessment of Most Critical and Emerging Risks Through M&A and Divestiture Processes by Industry

Risk Management Department and Function

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