Successful M&A’s take a great deal of planning. With 2021 poised to be a record year of M&A transactions, it’s imperative that your Board is prepared to offer objective support and oversight to build out a successful strategy. Consider how you will address the following obligations when navigating through an M&A:
- Planning & Strategy
- Deal Flow
- Integration & Value Realization
“The world is still a volatile place, but the foundations are in place for one of the largest M&A years to date.”
Board Questions and Considerations Going into 2021
After a sluggish start in 2020 on M&A activity due to the pandemic, the latter half of 2020 came back with force. As 2021 gets underway, there is an incredible buzz on M&A in general, and specifically about the amount of capital available to be deployed over the coming months.
According to a Globe and Mail article on January 2, 2021, US volume was down 23% in 2020 while Europe and Asia-Pac were up 35% and 15%, respectively. However, there is a lot of momentum going into 2021 and in the article, Stephan Feldgoise, global co-head of M&A at Goldman Sachs Group, states, “The world is still a volatile place, but the foundations are in place for one of the largest M&A years to date.”
This calls to attention whether boards are adequately prepared to support their companies with an acquisition strategy, be it to buy or to sell. Mergers & Acquisitions are hard; they take considerable expertise to successfully manage and can completely defocus a company.
If this strategy is in your purview, as a Board of Directors of a public or private company, you should be prepared to ensure adequate oversight. One of the biggest impacts a board can have is challenging the management team and their biases. M&A deals can become emotional and views can become clouded, particularly if you have invested a lot of time and energy trying to get the deal over the finish line.
Following are key questions and considerations as a Board of Directors.
Planning & Strategy
Oversight– As part of your duty of care responsibilities, adequate oversight is imperative. Poorly executed M&A deals can have long-term detrimental impacts to the corporation and its shareholders. How much time is devoted to this topic in your board meetings? Does the management team have an M&A playbook that the board is strategically aligned to?
Skills – Is there a composition of resources on the board that have expertise in M&A transactions? From raising capital, to deal structure, integration and ensuring the value is attained from the deal, the range of skills and expertise required is wide. You will need to assess whether the management team is adequately represented with M&A expertise, and whether the skills required are specified in the board’s skills matrix. If gaps exist, some can be addressed with training outside advisory. Has the board had adequate training on M&A? Certainly, this could be part of the board training agenda, and should happen well before any M&A activity has commenced.
Involvement – The extent of the board’s involvement in the M&A process should be determined by the size of the acquisition and the risks it may pose to the company. Consider creating an M&A committee that is tightly aligned with the management team to avoid lengthy time lapses between board meetings and prevent the “surprise” encounter.
Strategic drives – Has the management team adequately identified, at a high-level, the “why” for a merger or acquisition deal? What is the company strategically trying to acquire? What gaps in the business strategy are they trying to close and are driving your company towards an M&A deal? Is an M&A deal better than “building“ or “borrowing” on your own? Are there other alternatives and have they been sufficiently explored? Does this align with your current strategy? Are there unbiased analysis and conclusions being put forth?
Risks – What are the risks associated with the deal? What is the risk profile of the company and how does the deal fit into this assessment? Are the risks associated with the deal adequately managed? Creating a list of risks and developing mitigation plans, and actually executing on them are very different things. Has the management team and BOD properly assessed and prepared for the risk management aspects?
Communications – Is there an adequate communications plan in place by management as the process evolves? What happens if there is a leak? What is the communications crisis plan?
Outcomes – Ultimately if the deal goes through, consider the implications on the boards of the two companies and the impact to board composition.
Deal Flow
As a board, you would want to ask: what is the company strategy for deal flow?
The market – Is there more than one offer for the opportunity? Does the board adequately understand the industry market trends? Is there consolidation in your market or sector? Are your decisions supported by adequate data?
Pre-qualification – Are you completely aligned with your management team on the criteria for accessing deal flow? There is nothing more frustrating for management and BOD than the excitement of a potential acquisition followed by the disappointment of a deal being rejected because the terms were not satisfactory. This should be well understood and aligned prior to any presentation.
Transaction – What is required from the company to make the deal successful (cash, resources, equity, time)? Often boards are very interested in whether the deal is accretive and do not adequately challenge the financial assumptions. This is as critical as understanding the financial statement of the organization; and the devil is in the details. Understanding deal types and the pros, cons and impacts of each, will ensure you are asking the right questions. Again, the creation of a board committee may be helpful in managing this particular area.
Integration & Value Realization
The importance of integration has gained appreciation over time, primarily as people realized that a poorly executed integration plan can be detrimental to achieving the value expected from the acquisition.
Value realization – Align on key metrics and ensure you have visibility into these metrics in a timely manner. The metrics should be the key indicators to showing that the value expected to be acquired, is indeed being realized.
Pre-integration – Are the pre-integration steps ready prior to signing of the purchase agreement? Laggard integrations create the opportunity for value and synergy leakage, as well as cultural challenges.
Integration – Back to the oversight aspects, does the management team have key integration expertise and resources assigned? Depending on size of the M&A, are the resources dedicated to this work or are they doing it on top of their day jobs? The quality of integration plans is quite varied and ensuring adequate oversight with a senior integration leader is paramount.
Culture – Has the management team adequately assessed the culture of the acquiree? One of the biggest triggers of unrealized value is underestimating the impact of cultures and failing to proactively merge them. Good cultural integration happens by design, not luck.
Successful M&A transactions take a great deal of planning, careful execution and objective assessment. The board, with its fiduciary obligations, must ensure proper oversight especially when they are large or carry potential risks.
We’ve got experience in all aspects of Mergers & Acquisitions so if M&A is part of your corporate strategy this year, we’d be happy to have a conversation with you to discuss how we can support your business as it achieves scale as well as answer any questions that you may have. Reach out to us today.
Colleen Kelley is Managing Director of Consulting at Stratford. She is a seasoned executive with over 25 years of experience in both high-tech OEM and contract manufacturing sectors. She is an engaging leader with substantive skill in profit and loss management, customer orientation, program management and supply chain management. Colleen also brings significant experience in merger and acquisition activities, as well as leading organizations through substantial transition.
This article was published more than a year ago. Some information may no longer be current.