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The art of add-on acquisitions in private equity: communication

Amy Gross, Global Private Equity Practice Leader for Liberty Mutual
The art of add-on acquisitions in private equity: communication

By Amy Gross, Global Private Equity Practice Leader for Liberty Mutual

We have seen major expansion in add-on acquisitions across various sectors over the last several years and anticipate the trend to continue. And while add-on acquisitions can give private equity firms and their investors a unique avenue for growth, this type of dealmaking is not without specific challenges, especially to their insurance underwriters. There is a definite art to executing add-ons with an eye to minimizing risk and arguably, at the heart of it all is solid communication.

Consistent safety controls put underwriters at ease

Speedily made deals are a given in the private equity industry. However, no matter the pace of growth, it’s imperative that brokers and carriers be brought in early. For starters, insurance in some cases is mandatory or fines could be assessed if the regulators do not have the right information from carriers. And carriers may be more amenable to underwriting add-on acquisitions quickly if they feel confident that a PE firm’s safety culture is consistent over the course of growth and across its entire portfolio. The same attention to detail on risk controls should be there from the first add-on to the 100th and that commitment to mitigating risk should be communicated.  

Informed carriers and brokers are strategic growth partners

Smart PE firms will most likely partner with their broker and insurance carriers to develop a growth plan, or at the very least should articulate their plan, to avoid surprises and maintain deal momentum. An ill-informed carrier might hesitate to underwrite new acquisitions, making conservative assumptions about the safety culture and risk profile of the add-on, and is more likely to issue a non-renewal if they don’t feel that they understand the larger risk. Brokers and carriers can make deals happen and should be eager to grow with an account when they know a firm’s strategy and are prepared for it. This involves being made aware of when acquisitions happen, being informed about how deals are made, being made assured the level of risk is the same or better, and when possible, being supplied with information they need to underwrite the risk upfront.  

Recognize when a relationship has run its course

As more add-ons are acquired, it is prudent to work closely with your broker to evaluate if your current carrier can meet the evolving platform company’s needs. For example, if you’ve partnered with a regional carrier but have a national growth strategy, transitioning to a carrier that can handle the growth you hope to achieve is wise. There are specific attributes to look for when shopping for a new carrier, including:

  1. Does the carrier have expertise in the industry you’re growing in?
  2. Can the carrier access multi-lines solutions?
  3. Is the carriers’ claims expertise solid and will employees, customers and directors and officers be treated well?
  4. Would you have access to risk services to help better manage risks across your portfolio?
  5. Does the carrier have geographic spread in the locales you’re targeting?
  6. Are they a financially sound company?

No one wants insurance to hold up a deal or face fines for inadequate coverage as an add-on acquisitions strategy is executed. Transparent, proactive and consistent communication between a PE firm and its broker and carrier is crucial for the process to run smoothly.  

Learn more about how we help private equity firms manage their unique risk needs here.

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Photo of Amy Gross

Amy Gross

General Manager, Global Private Equity

Boston, MA

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