Fast Food M&A

The economic instability in the last year has led to an uptick in sale activity between franchise owners. If you are buying someone else’s existing business here are some items to consider as it pertains to workers' compensation insurance premiums.

1. You will have to submit an ERM -14 to NCCI to determine combinability. Generally, the entities will be able to combine as long as there is shared common majority ownership.

2. You can very generally tell what will happen to your premiums based upon the experience mod of the purchased entity? Obviously, a mod that is higher than yours will be more expensive and a mod that is lower will be less.

3. Look at whether the additional payroll associated with this sale will change the expected losses amount used in your experience mod calculation? If that is the case, the impact of the higher mod can be slightly dampened because losses that were impactful based on the lower expected losses become less impactful.

It is key to discuss with your entire team, including your insurance advisor, the impact of mergers on your risk management needs and risk management costs so that the additional revenue from the purchase isn't eroded by the increased costs.