It was the late 1980s, and Dallas/Fort-Worth would become the epicenter of a new model of private equity known as the leverage buyout (LBO). For those of you unaware, an LBO is the acquisition of a public or private company whereby the new investor, oftentimes a private equity firm, use a large amount of borrowed funds to fund the purchase.

As we embark upon the roaring ‘20s, here we are again. So, whether your company or private equity firm is buying or selling, here are some helpful insurance hints to think through when in deal mode:

Is this an Asset or Stock Sale?

An asset purchase involves acquiring the company’s assets:

• equipment
• vehicles
• facilities
• inventory
• the workforce (employees may or may not accept an offer to work for the new company)

A stock purchase involves the purchase of the selling company’s stock, but takes on a different nuance for our diligence team. Under a stock purchase, the acquiring company will own all the past “sins” of the organization, which requires a more comprehensive due diligence review.

As an example, if an annual Form 5500 was never filed with the IRS, the acquiring company would be responsible for the fines. Our team would help clean this up through EBSA’s Delinquent Filer Voluntary Compliance Program.

Compare Insurance Plans & Risk

Another consideration for our diligence team is a side-by-side comparison of insurance coverage and benefits. You can be assured that any new employees joining your organization will take personal interest in how their family’s healthcare, retirement, benefits, and paycheck will be impacted through the transition.

Additionally, our corporate benefits and insurance team is concerned with how the target company acquisition will impact the projected pro-forma budget, systems and processes, culture of safety, loss runs, and other nuances pre and post close.

Oftentimes, there are transition items that must be considered, such as service or deductible credit involving benefits and exposures or tail-liabilities on the insurance.

Are There Insurance Savings Opportunities?

We have never met a company that wants to pay more than they must for the cost of insurance. So, our team will identify savings through economies of scale, negotiated coverage terms, or strategies to lower costs for the new company.

We recently discovered a telemedicine benefit that employees were funding entirely through payroll deduction. The benefit was great, but our team recognized this service was already included as part of the corporate paid health plan and was an unneeded expense (and paid hefty commission to the broker that would soon get fired).

Surround Yourself with Strong Partners

The most successful deals are always a hallmark of competent advisors and leadership teams who continually build trust. The savviest of financial sponsors know that key investments, along with eliminating waste, can help make any business stronger.

Acquiring a company through stock or an asset sale is an art, not an exact science. It is not a transaction, it’s a dating process that eventually leads to a proposal and marriage. However, the most important responsibility Holmes Murphy has is “Thinking Ahead” as it relates to insurance, risk management, and benefits, so our clients look great going down the aisle together on the big day.

If you’re in the process of making an important decision like this one, don’t hesitate to reach out, and we can walk you through what you need to know!