Deal or Bad Deal

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Deal or Bad Deal?

• M A
• Q A

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Deal or Bad Deal?Panel Members

• MODERATOR
• James M. Fasone, Division Senior Vice President
• Arthur J. Gallagher Risk Management Services
• Simon Hodge, Managing Director
• Wachovia Insurance Services
• William Monat, President and CEO
• Transactions Risk Solutions
• Miles D. Scully, Managing Partner
• Gordon Rees LLP
• Kim Patlis Walsh, Managing Director
• Corporate Risk Solutions
• Chris Warrior, Underwriter, Specialty Lines
• Beazley Group plc

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Overview

• Exposures Created from Mergers and Acquisitions
• Insurance Coverage Implications
• Underwriting Issues and Concerns
• Emerging MA Trends
• Product Solutions

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Overview of PE Market
Source The Private Equity Analyst, July 2007
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Transaction Structures

• Degree of successor liability depends upon the
  type of transaction
• Three Primary Types
• Merger
• Stock Acquisition
• Asset Acquisition

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MA Challenges

• Data Access Needed
• Purchase Agreement
• Due Diligence Information
• Pro Forma Financials
• Insurance Policies

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MA Challenges(contd)

• Understanding Insurance and Indemnification
  Agreements
• Understanding Change in Control Provisions
• Interfacing With Other Deal Pros
• Managing the Politics
• Meeting Expectations

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Deal Killers

• Bank write-downs
• Lack of financing / fundraising
• Valuations, inability to exit and profit quickly
• Buyer/Seller cant agree on liabilities,
  indemnification language, RWs, covenants

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Deal Killers(contd)

• Purchase price adjustments
• Other
• Scrutiny from legislative bodies
• Certain Industry developments

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Making It A Better Deal

• Assist Negotiation of Transaction Documents /
  Indemnity Agreements
• Identification of Transactional Risk Protections
• RW insurance, tax liability, litigation buyouts
• Purchase price adjustments due to accruals /
  reserve practices
• Deal protection / failed deal insurance
• Successor liability

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Making It A Better Deal(contd)

• Other Insurance Protections
• DO runoff / tail, ongoing
• Address international exposures
• Surety / alternative collateral
• Environmental
• Products liability
• Political risk insurance

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State of Transactional Insurance Market

• Maturing marketplace for transactional products
• U.S. product experience 10 plus years
• Building acceptance in deal community steady
  process
• Underwriting methodology
• Significant opportunity to grow products

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Liquidity Crisis Impact on MA and PE Markets

• Financing for mega deals difficult
• Higher debt costs driving down EBITDA Multiples
  that PE firms can pay
• Re-focusing of PE capital
• Targeted funds infrastructure, foreign, etc.

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Liquidity Crisis Impact on MA and PE
Markets(contd)

• Smaller buyouts with more PE equity vs. debt
• Distressed buyouts
• Strategic deals
• Foreign acquisition of U.S. companies

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Product Innovations

• New Product Innovations
• Private Equity Product that addresses
  contingency exposures faced by PE firms at fund
  close to enable distributions without risk of
  claw backs indemnity obligations or
  contingencies
• Adapt products to changing deal environments as
  new issues arise

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Emerging Trends in MA

• Deal Boom 2006 and 2007 Leading to U.S.
  Sub-Prime Crisis
• Mega-deals closed by private equity groups,
  incredible valuations
• Movement from publicly traded firms in hands of
  shareholders to PEGs
• IPOs of PE/Alternative Investment Firms
• Continued boom of restructurings / refinancing

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Emerging Trends in MA(contd)

• Impact of Post-Debt / Credit Crunch
• Private equity investment slowdown
• Debt financing and tax benefits more expensive
  and difficult to secure
• Deal valuations significantly reduced
• Overleveraged debt lenders, fragility of certain
  hedge funds
• Outside U.S. investors cautious European banks
  hit hard due to mortgage-backed products
• Continued regulatory scrutiny, SEC watchdog
  investigates deeper into banks, investment firms,
  alternative investment firms

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Takeaways

• MA Market Highly Complex
• Product Solutions Very Deal Specific
• Still Relatively New Market
• Deal Slowdown Predicted
• Market Ripe for Product Development

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AudienceQ A
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Many thanks to . . .

• James M. Fasone
• Simon Hodge
• William Monat
• Miles D. Scully
• Kim Patlis Walsh
• Chris Warrior