LONDON, 10 January 2007 – Cultural differences are hindering M&A transactions alongside other risks that can be more easily addressed, according to a Private Equity M&A report commissioned by leading insurance broker and risk consultant, Aon. The survey shows that amid increasing expansion by private equity houses into global markets, many harbour concerns over cross-culture M&A deals. 38% of respondents cite co-ordination and process problems as the biggest causes of friction.

The research highlights that as a consequence of these concerns, deals in far-flung territories are a lower priority on the PE agenda, implying possible missed opportunities in the emerging markets of Eastern Europe and the BRIC economies (Brazil, Russia, India and China). Instead, 36% of respondents see Western Europe as the area most likely to experience a continued wave of interest, but suggest that even the comparatively slight variations in culture in mainland Europe can slow or even stop deals in their tracks.

Survey participants also highlighted other M&A barriers, including regulation, political risk, highly competitive auctions and downward pressure on expected returns. An overwhelming four out of five agree that the UK has the most difficult pensions regulatory system when it comes to completing a deal.

Despite concerns raised over risk, many private equity firms do not regard the priority of the insurance due diligence process to be to identify historical uninsured liabilities. Many see it as a financial exercise to identify present and future insurance costs. Buyers are paying only limited attention to a target’s history potentially exposing them to huge uninsured losses.

Commenting on the survey findings, Marc Bennett-Coles of Aon Mergers & Acquisitions Group said: “Whilst this is an increasingly global business community, it is clear from our research that culture remains a significant barrier to M&A deals. There are, however, areas of risk that are easier to address, such as past liabilities. Risk analysis can help to identify and mitigate against these risks and a full insurance due diligence exercise should be conducted on a potential target.

“It is also interesting to note the number of respondents (50%) who discount the possibility of using transactional insurance as an M&A tool, even though the process has been streamlined and costs cut. The use of insurance capital remains worryingly under-explored, with many PE houses unaware of recent innovation in risk transfer products now able to protect them.

“Sophisticated private equity houses should consider using insurance as a strategic tool to unlock their deal deadlocks and advantage themselves in the auction process during an exit. We believe that transactional insurance could play an increasingly influential role in M&A going forward.”

Other findings in the report include:

• Despite the growing presence of hedge funds, they are generally not perceived as a threat, but rather viewed as potential partners who will be increasingly engaged in deals. 33% of respondents expect that in the coming year, hedge funds are most likely to be involved with mezzanine funding whilst others suggest that they will appear as part of an equity providing consortium.
• Respondents expect growth most notably in healthcare, services and the financial sector.
• In order to maximise investment returns, 51% of respondents prefer general auction. Second to this comes sale to a trade buyer or another private equity player, with IPOs becoming less popular in the prevailing economic climate.

Notes to editor:


This report is based on a survey of 82 respondents in the UK private equity market. The survey was conducted by an independent research organisation on behalf of Aon. The respondents were mostly partners, directors and senior managers in their companies. The survey comprised twenty substantive questions.

About Aon Aon Corporation is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 46,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

This press release contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors that could impact results include: general economic conditions in different countries in which we do business around the world, changes in global equity and fixed income markets that could affect the return on invested assets, fluctuations in exchange and interest rates that could influence revenue and expense, rating agency actions that could affect our ability to borrow funds, funding of our various pension plans, changes in the competitive environment, our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, our ability to execute the stock repurchase program, our ability to consummate the pending sale of the Aon Warranty Group, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, changes in revenues and earnings due to the elimination of contingent commissions, other uncertainties surrounding a new compensation model, the impact of investigations brought by state attorneys general, state insurance regulators, federal prosecutors, and federal regulators, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, and ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, and the difference in ultimate paid claims in our underwriting companies from actuarial estimates. Further information concerning the Company and its business, including factors that potentially could materially affect the Company’s financial results, is contained in the Company’s filings with the Securities and Exchange Commission.

Aon Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only.