Workers' compensation plays a major role in M&A deals, though few realize it

There are many factors that go into determining the value of a company. Many buyers and sellers don't realize, however, that an M&A deal's value changes based on existing workers' compensation claims, coverage history and program status.

"Successors must look closely at the company they're acquiring," says Nathan Kenney, Chief Operating Officer at Spooner, Inc. "When you combine two entities, everyone's situation can get worse. If you don't take workers' compensation into account when doing a deal, you'll pay more than the value the acquired company brings to the deal in the long run."

Smart Business spoke with Kenney about the effect workers' compensation liabilities have on an M&A event and how a correct value can be assessed.

How are the parties in an M&A deal affected by workers' compensation liabilities?

When an M&A deal is executed the predecessor company is no longer responsible for its workers' compensation liabilities — they transfer to the successor company at the date of the close with all rights and obligations following.

Companies need to know that if they are acquiring a company with a history of mismanaged claims, they will pay the price in higher penalty rates and premiums. It is common for companies to treat workers' compensation as an inevitable benefit rather than investing in a proactive approach to the management of claims.

What protections against workers' compensation liabilities does a deal structured as an asset purchase provide?

Unfortunately, no deal structure can provide protection. Ohio law allows the Bureau of Workers' Compensation (BWC) to transfer the claims and experience of the acquired company to the successor regardless of how a deal is structured. There are limited exceptions to the rule, but those cases typically end up in adjudication or court.

How can an M&A event affect group rating?

When a company is part of a workers' compensation group rating program, the group administrator needs to be notified before a merger occurs. The claims and payroll from the company that's joining the group must be accounted for so the group's administrator can see how its entry will affect everyone involved.

Bad claims can devastate the premiums of all a group's members. Even if the change only amounts to an increase of a couple percentage points, spread over millions of dollars in payroll it becomes significant.

In most cases, companies that participate in group rating programs agree to inform their group administrator whenever a purchase or merger is being contemplated. In the event the transaction has a negative impact on the group program, the acquiring company would agree to indemnify and hold harmless the entire group.

If the merger causes financial harm to other members of a group or adversely affects the acquiring company's risk of future losses, and the acquiring company did not disclose the potential merger, the BWC allows the group sponsor to request that the offending company be removed from the group. That can sometimes cost hundreds of thousands in lost discounts or refunds.

Talk to the group administrator about any M&A plans. Have the deal examined to eliminate any surprises.

What due diligence should be done ahead of an M&A event?

Any company involved in an acquisition should complete a comprehensive review of the workers' compensation policy of the company being acquired. This includes evaluating claims history, outstanding balances with the BWC and attorney general, how the predecessor's programs align with the successor's programs, and whether there were individual retrospective or deductible program participation in the history of the company. All of these can lead to increased liabilities, especially when a company is purchasing a struggling business, as there's the chance it has greater workers' compensation problems and claims that need to be expertly managed immediately. Once a complete picture of the deal can be seen, it's easier to adjust the purchase price.

Ask questions to ensure the workers' compensation piece has been reviewed because it can significantly affect the benefit of doing a deal. Failure to do so will have lasting repercussions.

As reported by Adam Buroughs at Smart Business Magazine


Nathan Kenney
Chief Operating Officer, Spooner, Inc.
(440) 249-5679
nkenney@spoonerinc.net

/ Print
Posted by Nathan Kenney in General

Comments


Be the first to comment
Name*
E-mail*
Website
Comment*
0 Pending Comments
 Keep me updated of follow-up comments!
Most Recent

By Admin
October 23, 2016 Category • General

Read the full publication here, including all NAICS industrty codes affected. On May 11th, OSHA published a new rule on Injury Tracking and Data Submission, which will require the majority of workplaces to start submitting their injury / illness data to OSHA on an annual basis. This site-specific data will then be published on the OSHA website by location. The following excerpt from the recent press release by OSHA explains the government thought process that went into creating this new rule. Since high injury rates are a sign of poor management, no employer wants to be seen publicly as operating a dangerous workplace, said Assistant Secretary of Labor for Occupational Safety and Health Dr. David Michaels. Our new reporting requirements will nudge employers to prevent worker injuries and illnesses to demonstrate to investors, job seekers, customers and the public that they operate safe and well-managed facilities. Access to injury data will also help OSHA better target our compliance

By Admin
October 23, 2016 Category • General

The Ohio Bureau of Workers Compensation (BWC) allows a biennial open enrollment period for Managed Care Organizations (MCO). This year open enrollment falls between May 2 and May 27. Open enrollment is very short and companies have many factors to consider. The decision employers make now to stay with their current MCO or change to a new MCO will impact them for the next two years. Companies must recognize that when theyre making this decision, to stay with their current MCO or change to a new MCO, its crucial to choose wisely, says Joe Spooner, vice president at Spooner Medical Administrators, Inc. Smart Business spoke with Spooner about open enrollment and the factors to consider when choosing an MCO. Employers cannot interview prospective MCOs before the open enrollment period, so its advisable to do research beforehand. Then, when employers are free to interview MCOs, they can ask carefully considered questions because there is limited time. A hasty choice or choosing not to look

By Admin
October 23, 2016 Category • General

The Ohio Bureau of Workers Compensation (BWC) allows a biennial open enrollment period for Managed Care Organizations (MCO). This year open enrollment falls between May 2 and May 27. Open enrollment is very short and companies have many factors to consider. The decision employers make now to stay with their current MCO or change to a new MCO will impact them for the next two years. Companies must recognize that when theyre making this decision, to stay with their current MCO or change to a new MCO, its crucial to choose wisely, says Joe Spooner, vice president at Spooner Medical Administrators, Inc. Smart Business spoke with Spooner about open enrollment and the factors to consider when choosing an MCO. Employers cannot interview prospective MCOs before the open enrollment period, so its advisable to do research beforehand. Then, when employers are free to interview MCOs, they can ask carefully considered questions because there is limited time. A hasty choice or choosing not to look

Categories
General (62)

CONTACTS

  • Address: 28605 Ranney Pkway Cleveland, OH 44145
  • Toll-Free: 800-837-1103 ext. 153
  • Email: info@spoonerinc.net

Spooner Inc. © , Powered by Virteom

User Login