Want to improve the valuation a private equity firm would place on your business? Get your risk management sorted out…:
[…] According to Mr. Murphy, crisis scenario planning is central to the preparation process. For example, organizations that collect personally identifiable information from their customers should prepare for a data breach, and organizations with far-flung operations should recognize the possibility of compliance issues.
Beyond protecting its reputation and assets, private equity firms have another incentive to invest in ERM and crisis planning. According to “The Valuation Implications of Enterprise Risk Management Maturity,” by Mark Farrell and Ronan Gallagher published by The Journal of Risk and Insurance,“…firms that have reached mature levels of enterprise risk management exhibit a higher firm value…to the magnitude of 25 percent.”
Private equity firms seeking ERM investment guidelines can look to RIMS, which reports that the total cost of risk for business grew to $9.95 per $1,000 of revenue in 2018, up from $9.75 in 2017. For PE firms that think the cost is too high or ERM doesn’t apply to their portfolio companies, Ms. Fox offers a dose of reality from the frontlines of risk management: “I don’t think any industry or company is immune to a crisis.”