Management Consulting
Aon
Full Credential Description
The energy sector is currently facing significant challenges, particularly in the context of mergers and acquisitions (M&A). Aons head of Energy & Mining in Asia, Melissa Shepherdson, highlights that the combination of a collapsing oil price and global economic uncertainty due to the COVID-19 pandemic has led to a dramatic decline in M&A activity. Specifically, the value of international upstream M&A deals in the first quarter of 2020 fell to one-third of the previous years figures, indicating a marked investor caution. One of the primary issues identified is the inherent risks associated with M&A transactions, particularly in the energy sector. Wong Hui Ling, director of Transaction Liability Insurance Asia at Aon, notes that many acquisitions fail because companies do not fully understand the unique risks related to the target assets. These risks can include human capital challenges, unexpected environmental liabilities, and tax implications, which are often overlooked during the due diligence process. To address these challenges, Aon recommends a tailored approach that includes comprehensive due diligence and the use of insurance solutions to transfer certain risks. For instance, warranty and indemnity insurance can mitigate the financial impact of any breaches of seller representations and warranties post-transaction. This strategy not only provides clarity and reduces transaction complexity but also fosters a more favorable environment for successful takeovers. By effectively managing these risks, companies can achieve cost reductions, enhance capital efficiency, and ultimately generate greater long-term value in a volatile market.