At a recent NACD roundtable discussing emerging trends, key considerations, and hot topics related to mergers and acquisitions (M&A), Baker Tilly CEO and AICPA Chairman Tim Christen and Senior Manager Russ Sommers facilitated a spirited discussion among corporate board directors. Covering organization targeting, merger strategy, implementation planning, compensation and incentives, deal makers/breakers, and success measures, the diverse group shared insights gleaned from their experiences.
Top ten tips for a sound M&A approach
- Goal clarity: Ask the question: What is the goal of this merger or acquisition? Capital deployment? Scale? Technology? Key people?
- Sound strategy: Hope is not a strategy. You need to have a clearly defined strategy for your approach to the transaction.
- Due diligence: If it can’t be explained simply, either:
- That person doesn’t understand it well enough and you need to speak with someone else; or
- Something isn’t right and you need to dig deeper.
- Be inclusive for a comprehensive view: Involve executives, operations, and information technology (IT) personnel in performing a pre-merger risk assessment. In addition to operational and financial factors, consider the congruence of the two companies’ enterprise risk management (ERM) programs, cybersecurity frameworks, and regulatory concerns (e.g., state/federal, CFPB, FCPA).
- Rigorous analysis: Trust your gut. If something doesn’t seem right, don’t proceed until you are satisfied.
- Maintain objectivity: Start every merger evaluation with the mindset that it does not fit, so that you must be convinced to say yes. This ensures you won’t allow the perceived benefits of a merger to cloud your decision-making.
- When evaluating a merger consider creating two evaluation teams, one for the merger and one against it. Have them “pitch” to you concurrently and debrief afterward.
- Culture matters: A critical success factor is to correctly assess the culture of the target.
- Secure introductions to employees who aren’t involved in the merger discussions
- Walk the halls and meet the people of the organization
- Role of the board: The board’s role is that of objective decision maker. Boards require timely information in order to make well-informed decisions.
- Results-based compensation: Evaluate how parties are compensated. Management often gets merger bonuses, investment bankers and consultants are compensated based on successful mergers. When everyone has a vested interest in a merger going through, are you receiving objective information? Consider modifying compensation structure.
- Compensate management based on multi-year results vs. plan rather than up front bonuses.
- Are there penalties for bad decisions?
- Designate an implementation champion: An implementation plan is only as effective as its champion. Don’t leave the implementation to each of the various departments to oversee – ensure a successful implementation by designating one point person to champion the implementation and report back to the board.