Making an acquisition is a major step for a company. For all the possible benefits, however, there are many challenges that can derail a deal and destroy the anticipated shareholder value. Navigating those pitfalls is vital to an acquisition delivering on its potential. Here are the steps boards should take at each stage of an acquisition.
One of the most important responsibilities a board has is to oversee the company’s strategy. That includes understanding if and how different growth options, including acquisitions, are part of that strategy. A company’s acquisition strategy can be complex. Some acquisitions fit the company’s long-term plan to create value for shareholders. They can provide opportunities when organic growth is difficult. In other cases, shareholders may be influencing acquisition strategy. Directors need to recognize these different drivers. And they need to hear the clear rationale for and connection to company strategy each time management presents a potential acquisition.
Once a board understands management’s rationale for an acquisition and how it fits with the company’s strategy, it needs to review the benefits and risks of the deal. It may take repeated discussions with management to fully understand how a transaction will impact shareholders, customers, employees, and other stakeholders. Companies have to take the bad with the good in any deal, and boards should push management to assess the key risks that can affect the value of an acquisition. The due diligence phase is also a time for directors to raise the issue of culture. Ideally, the board should confirm that management is considering how the two cultures align, and how they can be integrated. Companies may also enlist outside support for certain acquisitions. Strategic advisors can help a company evaluate an acquisition and can be valuable in confirming or questioning management’s risk assessment and valuations.
In most deals, the period after the acquisition closes is crucial. Failure to successfully integrate the employees, processes, systems, and culture from each organization can seriously hamper a deal’s benefits. It’s also essential to have a robust post-deal communications strategy that explains the advantages of the acquisition to key external audiences and updates employees across the combined enterprise about the progress of the integration.