The current economic environment and
growing uncertainties (
pandemic, war, weather and hydrogeological risk), impacting SMEs' Customers, place further risks on the SMEs themselves. From the perspective of a Professional, the understanding and adoption of effective risk mitigation tools become essential.
During M&A deals, the key role of credit insurance then emerges.
The Insolvency Situation in Italy
In the current economic context, marked by a significant increase in insolvencies in Italy and with a
projected rise from 7,164 cases in 2022 to 10,200 by 2024 (forecasts by Allianz Trade), small and medium-sized enterprises find themselves facing growing challenges that threaten their financial stability.
In this scenario, the role of the professional or business advisor becomes crucial, especially as regards the adoption of effective risk management tools, such as credit insurance.
The Double Advantage of Credit Insurance
- Risk Assessment and Monitoring: the Insurer provides a risk assessment for each customer. This service allows CFOs / Business Advisors to identify in advance the risks associated with new customers or with existing ones during the renewal of commercial relationships. This check proves to be a valuable preventive tool.
- Extended Insurance Coverage: In addition to risk assessment, the Insurer provides insurance coverage that embraces nearly all customers, excluding those deemed unworthy. In the event of unforeseen events such as pandemics, wars or natural disasters that impact customers' ability to pay, or if for any reason the customer fails to pay, the Insurer steps in, compensating for the missed payments.
During M&A deals, then, the key role of credit insurance emerges.
The key role of Credit Insurance in M&A Deals
- Cash Flow Stabilisation: During an M&A deal, it is essential to maintain financial stability. Credit insurance protects against the risk of customer insolvency, ensuring that cash flow remains stable and predictable, a critical factor in supporting the costs associated with the M&A deal.
- Accurate Risk Assessment: A critical part of due diligence in an M&A transaction is understanding the risks linked to the target company's customers. Using credit insurance gives access to detailed credit risk assessments, thus providing essential data to correctly evaluate the value and potential risks of the investment.
- Post-acquisition Risk Mitigation: Mergers or acquisitions often lead to the integration of different customer portfolios. Credit insurance helps mitigate the risks associated with this new set of customers, protecting the resulting entity from potential insolvencies that could affect the balance sheet.
- Facilitating Financing Negotiations: The presence of credit insurance can improve a company's standing in the eyes of lenders. This tool demonstrates that the company is well prepared to manage credit risks, thus making it easier to obtain more favourable financing terms.
- Building Trust during the Transition: M&A deals can create uncertainty among customers and suppliers. Demonstrating that effective risk management measures exist, such as credit insurance, can help maintain trust between business partners during the transition period, essential to the success of integration.
Conclusion
Although credit insurance is a useful mechanism in the day-to-day management of corporate finance as well, its application and the benefits it brings can be extremely significant in extraordinary contexts such as M&A deals.
In a context full of potential risks — such as the extraordinary M&A operation — it provides financial and operational security that can make the difference in the success of these complex deals.
