SO far this year Irish companies have spent more than £1.3 billion on acquisitions, a 205 per cent increase on the same period last year. Since research shows that more than half of all acquisitions fail the associated risks can be immense. As well as pure investment risk issues such as pension funding, industrial diseases and pollution need to be carefully considered before any merger or acquisition is made.

To acquire a company is to acquire liabilities. Analysis of the corporate balance sheet is central to the decision to acquire or merge. However, many liabilities are not evident in financial accounts and will require specialist skills in risk management to unearth them. Identification and evaluation of these risks are vital negotiating tools for any acquisitive company. The risks include:

. Employee Benefit Risks: Employee benefits risk analysis is particularly important. The pension fund must be fully investigated to assess whether hidden costs arise, such as unfunded liabilities or different benefit structures that will need to be equalised in the future. Failure to fully consider these issues in a merger or acquisition could lead to significant additional cost in the future, which could negate the value of the deal.

For example, a case study of a recent company take over showed that the existence of a pension scheme had not been disclosed, scheme valuations were over optimistic resulting in a greater contribution requirement in the future and extra expenditure was required to comply with European law on Equal Treatment.

. Other Risks: General exposure analysis can be used to assess a company's exposure to every other facet of risk. Products liability, directors and officers liability, industrial diseases, environmental and contractual liability are the principal risk factors.

For example, a company acquiring a manufacturing company may need to fully understand the potential exposure to claims for industrial deafness. If this exposure is not fully understood or quantified, claims could arise in the future which could lead to significant cost, running into hundreds of thousands of pounds.

In general companies should ensure that risks are quantified and suitable solutions found through the purchase of retrospective insurance cover, pension funding or increased transfer values.