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February 11, 2019

Agriculture cooperative mergers and acquisitions risk management

It's all in the details

Roger Starks

Managing the risks that accompany mergers and acquisitions is always complex.

When those mergers and acquisitions involve agricultural cooperatives, it’s even more complicated. 

A merger is similar to bringing two families together to live under the same roof. Organizational cultures often vary and tend to be difficult to change or combine.

However, ongoing consolidation in the agriculture industry makes such scenarios increasingly common.

More stakeholders can mean more risk
Mergers and acquisitions among cooperatives are particularly complex because these organizations may have literally thousands of member-owners and longstanding ties to local communities.

Any misstep can leave either of the two merging cooperatives—or the newly-formed cooperative—vulnerable to lawsuits. It’s estimated that as many as 15 to 20 percent of co-op mergers and acquisitions spark litigation.

It’s critical that both parties satisfy notification and voting requirements. Communicating merger or acquisition plans improperly is one of the more common errors that cooperatives can make. It’s partly because those notification requirements can be quite detailed and vary from one state to another, depending on their statutes.

Change can make people uncomfortable and sometimes angry. Litigation can be initiated by member-owners, employees, executives, board members and even community members. Even lawsuits ending in dismissal incur legal fees and create hassles.

Why a risk management consultant is essential
Cooperative leadership often wants to identify the optimal time to bring in a risk management consultant.

The answer? As soon as possible.

Finding a risk management team with specific and extensive experience in agricultural cooperative mergers and acquisitions can be challenging. However, such consultants are invaluable.

Cooperative mergers and acquisitions involve and affect all aspects of the business. High-performing risk management teams include specialists who examine, among other things, regulatory issues, compliance, claims, finances, workplace culture and operations.

When the two cooperatives come together, they both bring their baggage. For example, if one of the cooperatives has liability exposure issues or ongoing legal actions, the newly-formed cooperative inherits those problems.

Such liabilities could continue until the statute of limitations is reached—which differs by state. Marsh McLennan Agency’s risk management consultants can uncover such liabilities so the new cooperative isn’t taken by surprise down the road.

Another important consideration is preventing the board of directors from being exposed to potential lawsuits, because their personal assets could be at risk. Working with a firm that has specialized expertise in management and executive liability issues is important to help you mitigate and manage these risks.

Also, there have been instances where the two cooperatives are insured, but the new entity is not.

Many cooperative leadership teams, and board members, have not previously experienced a merger or acquisition. It can be difficult to project risk when you’re in an unfamiliar situation.

That’s why it’s imperative to bring in risk management consultants with specialized industry experience and familiarity with local rules and state laws. Marsh McLennan Agency’s agribusiness team can provide the due diligence and protection needed for cooperative mergers and acquisitions.