Case Study
Coverage and Diligence Challenges for Acquisition with Substantial International Operations
The Request
International tax diligence reluctance
Company Profile
Acquirer Type: Private Equity Firm
Target Industry: Cyber Security
Geography: US and International
A private equity firm engaged Brown & Brown in connection with the acquisition of a domestic cybersecurity provider with operations and subsidiaries in the United Kingdom, Philippines, Australia and New Zealand.
Request
Potential RWI carriers required international tax diligence on those related areas of risks.
However, the private equity fund was reluctant to conduct the requested international tax diligence because of timing and cost. Further, the customer perceived the risk of loss from those exposures to be low.
On our advice, the customer asked its usual tax due diligence provider to estimate the cost of producing the diligence. Unfortunately, their usual tax due diligence provider required a significant fee to conduct the diligence. Based on the diligence proposal, our customer was prepared to forgo coverage.
The Solution
Cost-effective full coverage solution
The private equity fund asked Brown & Brown to find a solution to get full coverage at a cost that was commensurate with its perception of risk.
The Results
1. Negotiated reduced diligence scope
2. Cut costs by 50%
3. Full coverage with real recoveries
Through effective negotiations and our professional and personal networks, Brown & Brown was able to craft a solution that achieved the customer’s objectives by reviewing the proposed tax due diligence scope and negotiating a reduced scope with the RWI carrier, effectively arguing that certain foreign jurisdictions were “immaterial” to the risk and, therefore, should not require due diligence.
Additionally, the team arranged for a Big-4 accounting firm to conduct the reduced scope due diligence for roughly 50% of the usual provider’s proposed fee.
The result was full coverage for tax exposures in all foreign jurisdictions at half of the expected due diligence expense.
The customer has collected roughly $3M in losses related to tax exposures in the Philippines and has open claims in the United Kingdom, Philippines, Australia and New Zealand that will likely result in significant additional recovery.
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