De-risking deals and protecting the balance sheet

05 August 2016

As the drive to cut costs, increase efficiency and trim portfolios continues in the mining industry, there is significant commercial opportunity for those mining firms and increasingly, private equity firms, to snap up assets and increase market share in anticipation of the turn in commodities prices.

Yet the risks are high, so it is unsurprising that buyers and sellers alike are becoming shrewder on how to manage long tail merger and acquisition (M&A) risks.

Once this period of adjustment has passed, inevitably further assets disposals will be made to restructure balance sheets and improve returns on capital, with the expectation that consolidation deals will take place between competitors and that opportunistic mining investors will start to acquire undervalued assets in the hope of longer-term returns. 

Given the strategic and often distressed nature of these deals, allocation of risk is increasingly a key issue during negotiations, with sellers wanting to walk away from deals with minimal long-tail liabilities and risk-averse buyers requiring high levels of indemnification if they are to invest in an unstable market. 

Increasingly parties on both sides of the M&A equation are using transactional insurance products in these scenarios, and in many cases, there is a trend for buyers and sellers transferring deal risks from their own balance sheet to that of an insurer.

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For further information, please contact Harry Floyd, Partner, Mining on +44 (0)20 7466 1305 or email harry_floyd@jltgroup.com

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contact Harry Floyd
Partner, JLT Mining harry_floyd@jltgroup.com