1. Aon Risk Solution Mergers & Acquisitions – What the Board need to know

2. Aon Strategic Advisors & Transaction Solutions 2 Today’s discussion  The role of the Risk Manager in a M&A transaction  The ‘Top 10 Challenges’ in the due diligence process  Transactional support – getting the deal done  Post deal ‘mop-up’

3. Aon Strategic Advisors & Transaction Solutions 3 Role of the Risk Manager Role of The Risk Manager Top 10 challenges Closing the deal Post–deal “mop up” Transactional Support

4. Aon Strategic Advisors & Transaction Solutions 4 Risk Manager’s role – Sell side  Information gathering and communication of core data to data room/potential buyers or their advisors  Provide timely and accurate responses to requests from potential/preferred bidder(s)  Carve out the assets/liabilities of the Target prior to completion/DD process. Establish separate programme for the Target for clean and speedy exit  Retain return premiums on the policies being cancelled/lapsed following the removal of the sold entity  Working with management and legal team to ring-fence liabilities of the sold entity

5. Aon Strategic Advisors & Transaction Solutions 5 Risk Manager’s role – Buy side  Obtain clear insurance and risk management information to enable efficient and effective underwriting of the Target’s risks  Understand and assess the Target’s risk exposure  Determine the appropriateness of the Target’s current insurance arrangements  Establish how best to manage/control the Target’s risk exposures moving forward  Portability of the Target’s current insurance programme  Ensure that risk management and insurance programme for the Target is “live” from completion date  Obtain clear line of sight of recovery in respect of open claims and INBR claims for e.g. access to historic liability insurance policies/insurer identity  Work with management and legal team to draft appropriate and strong buyer favoured insurance warranties under the SPA  Request the return premiums due following the removal of the Target’s assets/risk exposures from the Vendor’s policies

6. Aon Strategic Advisors & Transaction Solutions 6 Top 10 Challenges 10

7. Aon Strategic Advisors & Transaction Solutions 7 Top 10 Challenges Understanding what are you buying into? Continuity of the Programme or Integration Ongoing protections for pre close liabilities, including run-off needs Poor policy drafting Claims experience Identifying true Cost of Risk (COR) Adequacy of funding for self- insured losses Current insurance arrangements not fulfilling contractual obligations Cultural differences SPA “sign off” Next

8. Aon Strategic Advisors & Transaction Solutions 8 Understanding what you are buying

9. Aon Strategic Advisors & Transaction Solutions 9 Identifying true Cost of Risk (COR)  What is the Target’s current annual premium spend?  How does the claims experience look? High frequency/low severity or low frequency/high severity?  What is the level of self-retention?  Risk management CAPEX

10. Aon Risk Solution Strategic use of M&A insurance – How, why and when to use it

11. Aon Strategic Advisors & Transaction Solutions 11 …before the how, why and when a quick word on the “what” Warranty and Indemnity (W&I) insurance is designed to cover unknown of unforeseen breaches that are possible to disclose against  In short the policies are an alternative way to finance the monetary liability for warranty breaches under the SPA  Policies attract a ‘one time’ premium at inception  Can increase the financial and temporal caps on liability beyond those in the SPA, and sometimes the scope of the warranties themselves  Can be taken out by the Seller OR the Buyer, however : –Always transferring the risk for the Seller’s warranty breaches Traditional Deal Security Measures  Escrow, earn-outs or deferred consideration –Ineffective use of capital –Delays return of capital to investors or shareholders –Risk of future litigation –Delays valuation  Bank guarantees –Relatively expensive  Third-party guarantee/indemnity –May not provide sufficient buyer comfort  Charge or mortgage over seller’s assets –May not provide sufficient buyer comfort –Not practicable if seller returning capital to shareholders or investors  Price chipping –Unattractive for sellers and does not quantify risks for buyers Buyer Seller Insurance market

12. Aon Strategic Advisors & Transaction Solutions 12 Why consider insurance? Better use of funds / Balance Sheet Protection · Manage contingent liabilities (allowing for a ‘clean exit’), especially if a divestiture is material in relation to the total size of the group · Bring forward distribution of funds to lenders/shareholders/investors Broadens Competition: · Broader warranty package can increase field of buyers Enhances Sale Process: · Prepares “cleaner” targets for an auction process · Allows sellers to focus on other workstreams · Makes bids more comparable Protects Passive Sellers: · Maintains management focus on business Removes concerns about a seller’s ability to satisfy future warranty or indemnity claims Gives greater certainty in valuation and negotiations Can provide a broader warranty package and/or duration Avoids lengthy litigation following breach Reassures shareholders/investors by reducing the risk of the deal Retains management focus on the business Can enhance or differentiate bid in auction sale Seller Motivations Buyer Motivations

13. Aon Strategic Advisors & Transaction Solutions 13 When to use it Seller Buyer 1 (uses escrow/ indemnity) Buyer 5 (uses escrow/ indemnity) Buyer 2 (uses escrow/ indemnity) Buyer 4 (uses escrow/ indemnity) Buyer 3 (uses W&I Solution) Wins Auction Buyer Introduces First Seller (builds W&I into the offering) Buyer 1 Buyer 5 Buyer 2 Buyer 4 Buyer 3 Seller Introduces First If a buyer is the first to introduce the W&I concept in an auction, they can:  Shut down auction as the buyer can accept seller’s warranties knowing insurance is in place  Use cost of W&I solution against sellers desire for clean exit to achieve lower purchase price Seller introduces W&I concept within auction process to multiple buyers. This allows them to:  Minimise or eliminate parental guarantee / contingent liability  Instruct buyers to bid with W&I to replace warranty cap  Capture economic benefits as multiple buyers will bid on same terms

14. Aon Strategic Advisors & Transaction Solutions 14 Policy structure – Buy side Insured: The buyer Objective: To provide coverage against financial loss suffered as a result of a breach of the seller’s warranties Structure: Warrantors give warranties, but these are capped at a lower amount, the insurance policy sits in excess of this First party policy: Policy is independent of the seller, therefore the buyer is entitled to make a claim directly against the policy Seller’s risk Buyer’s risk Policy to protect against financial loss Insurance policy Sale & Purchase Agreement Limitation of liability for breach of rep or warranty under the SPA Transaction value Policy limit (buyer’s risk appetite to determine limit)

15. Aon Strategic Advisors & Transaction Solutions 15 Policy structure – Sell side Seller’s risk Buyer’s risk Policy of indemnity Insurance policy Sale & Purchase Agreement Limitation of liability for breach of warranty under the SPA Transaction value Policy limit Insured: The seller Objective: To provide coverage in the event that the buyer sues the seller for a breach of rep or warranty Structure: Can insure up to the warranty cap as defined by the sale document Policy of indemnity: Seller still retains liability under sale document, therefore is liable for any breach not picked up by the insurance policy

16. Aon Strategic Advisors & Transaction Solutions 16 How to use it: Understanding the coverage Coverage Basics  Broadest cover for warranties that are: –Fairly balanced and in sellers’ scope of knowledge –Capable of factual verification (avoid subjective statements or “sweepers”) –Not forward looking  Capacity: USD 500 million (dependent on jurisdiction and deal dynamic)  Pricing: typically 1% - 3% (1% -2% for Europe) for most EMEA deals, but influenced by: –Jurisdiction of the target’s business and assets and business sector –Complexity of the transaction –Transaction value, insurance limit, coverage, policy period, retention/deductible, policy structure –Level of due diligence (both buyer and seller)  Retentions: 1-2 % +/- of transaction value;  De mimimis: generally 0.1% of transaction value  Policy period: Mirrors or extends underlying agreement, up to 7 years Excluded Matters Common exclusions:  Matters known to either party at completion  Fraud of the insured party  Consequential losses  Forecasts/forward-looking warranties  Contamination/pollution  Inadequacy of business insurance cover  Fines and penalties uninsurable at law  Pension underfunding, transfer pricing and secondary tax  Post-closing price adjustments/leakage indemnities  Bribery or corruption Transaction-Specific Exclusions:  Known or high-risk environmental issues  Disclosed or known issues that are typically subject to a specific indemnity

17. Aon Strategic Advisors & Transaction Solutions 17 How to use it: Placement process and timing 1Agreement and signing of Confidentiality Agreement / Structuring discussion First day  Signing of client and Broker NDA  Agreement and signature of NDAs with insurers 2Non-Binding Indication 2 - 4 days  Provision of negotiated draft SPA, outline of deal structure & back ground information  Request for initial terms from several insurers 3Quote Binding Terms 5 - 7 days for steps 3,4 and 5  Selection of one insurer for quotation review  Insurer Expense agreement signed (if applicable) 4Insurer risk assessment for quote  Insurers receipt and review full deal documentation, data room and external DD reports  Call with underwriter and proposed insured 5Binding quote  Client confirmation on required policy structure  Confirmed premium, policy retention & policy de minimis  Agreement on final policy terms and conditions  Provision of final/executed versions of the transaction documents 6Policy inception  At signing / closing /upon receipt of insured’s instructions to bind cover The whole process usually takes 10 business days but will generally track the transaction timetable

18. Aon Strategic Advisors & Transaction Solutions 18 Important issues to consider W&I insurance does not replace due diligence Insurers want evidence of a thorough DD-process, and that negotiations have been on arm's length terms (as “in the absence of W&I insurance”) I.Appointment of reputable professional advisors engaged to carry out DD with a scope appropriate for the transaction II.Availability of comprehensive legal, financial, tax and other specialist diligence reports (NB: thresholds v SPA de minimis) III.Exclusions and assumptions to the DD reports should not carve out issues of material importance –Many trade or corporate buyers will perform internal DD with limited engagement of external advisers. Insurers can underwrite this approach but it is advisable to flag it early on and discuss scope and evidential approach IV.Data room access - evidence of disclosure by the seller of all material documents relevant to the business V.Comprehensive responses in Q&A during the transaction process VI.Comprehensive disclosure by the insured in its responses to the insurers underwriting questions

19. Aon Strategic Advisors & Transaction Solutions 19 How can the risk manager add value? Pre transaction  Educate and advise the board / corporate development group on: –the strategic benefits of using insurance –the information required by underwriters and process –what insurance does and does not cover During the transaction  Manage deal team and project manage provision of information and key milestones  Work with broker to leverage strategic insurer relationships  Be key liaison point between broker and deal team  Ideally – be a valued member of the deal team and influence buying decision  Try to avoid – deal team disengaging from the process and assuming you will take care of everything!