Five Critical Questions one should ask when accessing the M&A Process
- How successful have your past deals been?
- Have you established a clear M&A process?
- How well does your company understand the M&A process?
- How does your M&A process compare with leading practices?
- How do you monitor performance after the board approves a deal?
In the wake of recent failures and losses in the corporate world, particularly in the US, corporate boards everywhere are being asked to bear more responsibility and become more involved in assessing strategy, reporting and risk management practices at their companies.
Since some of the most significant decisions any company makes involve mergers, acquisitions, alliances and disposals, it is particularly important to impose rigorous controls, solid business processes and reliable performance measures, especially when one considers the time compression and amount of capital typically at risk. In an era that calls for greater accountability, senior executives and board members need concrete guidance on how to anticipate issues, avoid mistakes and make better M&A decisions to benefit their shareholders.
A good M&A process is necessary, but not glamorous, and hard to develop overnight. Although thorough diligence is sometimes mistaken for a good M&A process, it is important to have reliable monitoring and risk management practices around all M&A-related activities including the identification, evaluation, negotiation, execution and integration of transactions.
In a world where corporate officers and directors are increasingly being asked to defend their decisions months, even years, after the fact, a formal M&A process helps reduce the risk of making poor or uninformed decisions, improves transparency and provides evidence that all parties are executing their responsibilities appropriately in this important business area. A replicable M&A process also saves time and money because:
- Everyone knows the endgame and the requirements for getting a deal approved
- The review process is standardised, leveling the playing field and helping to ensure the equitable allocation of capital across all viable opportunities
- Tight links among all M&A activities speed the flow of information to decision-makers, helping them reach a go/no go decision more quickly
1. How successful have your past deals been?
- How do your results compare with expectations? With peers?
- What (if any), underlying factors consistently mark successful and unsuccessful transactions at your company?
- How does management respond to poorly performing transactions? What is the process for identifying problems early and resolving them?
2. Have you established a clear M&A process?
- Have you clearly conveyed your M&A process to all parties critical to analysing and executing deals, including corporate development, legal, finance, treasury, operations, IT and human resources?
- Does your process cover all phases and types of M&A - not just diligence - and sell side as well as buy side?
3. How well does your company understand the M&A process?
- To what degree has the M&A process captured the “hearts and minds” of your company?
- Does the organisation value and follow the M&A process, or consider it an obstacle to “deal making”?
- How do you ensure that shortcuts and sidesteps are not taken?
- Has top management and the board made it clear that there are serious consequences for failing to control M&A?
4. How does your M&A process compare with leading practices?
- How did you develop your M&A processes and controls? How much was based on leading practices, and how much on the experiences and capabilities of management responsible for M&A?
- How strong are the linkages among the various phases of a deal?
5. How do you monitor performance after the board approves a deal?
- What is your company’s process for informing the Board regularly on the performance of an acquisition after it closes?
- What metrics and timetables do you use when assessing performance against expectations, and when seeking follow-up actions by integration teams?
- What is your process for taking actions to preserve strategic options during the post-close/integration period?
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