Mergers and acquisitions (M&A) in the construction industry are a strategic way to accelerate growth, expand company capabilities, and increase market reach. However, without a proactive insurance and surety bond strategy, there may be unforeseen risks that impact your company in the future.
Identifying these exposures early is critical to protecting the value of any construction M&A deal. Addressing the following areas can help reduce the overall risk:
- Legacy Liabilities
Acquiring a company means inheriting its past, including any:
- unresolved claims
- warranty obligations
- allegations of defective work
These legacy liabilities can surface long after the transaction, potentially leading to significant financial and reputational consequences.
- Insurance Program Compatibility
Disparities between the insurance programs of the acquiring and acquired entities. Differences in coverage limits, deductibles, policy terms, and carrier relationships can create coverage gaps or redundancies. Evaluating and aligning these programs ensures seamless coverage continuity and prevents unexpected liabilities.
- Surety Considerations
Surety bonds are integral to many construction projects, and changes in ownership can affect bonding capacity and relationships with sureties. It's essential to assess how the transaction will impact existing bond programs and to engage with surety providers early to maintain bonding continuity and support ongoing and future projects.
- Comprehensive Due Diligence
Beyond reviewing insurance policies, it’s important to perform an overall assessment. This should include an analysis of loss histories, open claims, subcontractor insurance compliance, and contractual risk transfer practices.
- Post-Transaction Integration
Successfully integrating insurance and surety programs post-acquisition is vital for operational efficiency and stakeholder confidence. Careful planning and execution are required to align risk management practices, maintain underwriting stability, and ensure that the combined entity operates cohesively.
Having a proactive risk assessment and strategic plan are key to safeguarding investments and achieving sustainable growth. For more insights on managing insurance and surety risks in construction reach out to TSIB today!
TSIB’s Risk Consultants are currently servicing the following locations:
East Coast: New York City, NY; Bergen County, NJ; Fairfield County, CT; Philadelphia, PA
Texas: Austin, San Antonio, Houston, Dallas
California: Orange County, Los Angeles County, Riverside County, San Bernardino County, San Diego County
Image credit: stock.adobe.com/contributor/205937049/natee-meepian