Clients
Overcoming Auto Liability Roadblocks
Situation
A large transportation company was targeting various entities on its way to grow into a logistics company. One of the targets was a trucking company that had a large fleet of 600 trucks -- and large automobile liability exposure to go with it. CRS analyzed the target company's current coverage, including its high-deductible automobile liability program. Analysis revealed that the target was not properly accruing for claims beneath the deductible. As a result, the approximately $300,000 of accrued liability on the target's books was believed to be closer to $1.8 million. The practice of accruing for deductible losses was impacting the valuation of the deal; their EBITDA was adjusted and the purchase price reduced.
Solution
When the seller objected to the reduction in value, CRS developed a solution that kept the deal alive. Specifically, CRS proposed a reserve adjustment model that would value the ultimate losses at close. We went on to help craft the Purchase Agreement language, reached an agreement with the seller's actuarial firm on acceptable loss development factors and participated in the claims review prior to the final adjustment. CRS also strengthened the Purchase Agreement to ensure that the seller and its shareholders would fully indemnify the buyers for losses beneath their deductible and excess of available insurance for claims arising from pre-close accidents.
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