Wednesday, November 24, 2004

Increasing Board of Directors M&A Responsibilities

According to Ian Cookson (Corporate Finance Director at Grant Thornton LLR), as a result of recent higher levels of governance, both in the courts and by new legislation such as The Sarbanes-Oxley Act of 2002, directors are likely to become increasingly involved in acquisitions, including evaluating transaction strategy and post-acquisition integration plans.

Cookson ( recommends the following useful shopping list in the "Financial Excutive" of Oct2004 for Key Responsibilities of the Board of Directors during an M&A:
  1. What are the integration plans?
    (Short-term actions, Communication plans (immediate and ongoing), Synergy delivery plans (and likelihood they will be
    achieved), Internal controls compliance plan, Individuals accountable)
  2. Is the strategic rational robust?
    (Closeness of fit with existing business, Acquisition's ability to leverage strengths and resolve weaknesses, Do economic realities match the story?, Other targets/options explored)
  3. How will we manage implications of people and culture?
    (Closeness of cultural fit, Implications for future ways of working, Retention and rewards for key people, What is it that makes the business successful?, How this wilt be retained and built on?)
  4. Viewing risks (in above) in context of price
    (Valuation, comparables, financing structure, Fairness opinion is independent, Due diligence is robust and directed to uncovering potential liabilities)
  5. Board litigation protection
    (Process, deliberations and analysis documented, Use of independent experts)
  6. Value added by board members
    (From personal experiences, Not simply monitoring management, Balanced perspective on weighing risks and rewards)

It is expected from board members to add considerable value to the above areas and to bring additional perspective to balancing the risks and benefits of the acquisition. If you're in an M&A trajectory right now as a Director and you're starting to feel a little bit uncomfortable: don't worry: Mr. Cookson expects an expanded role of independent advisors to the board likely to follow suit, moving well beyond fairness opinions into the above areas ;-)


Anonymous John Brown - MAVERLINN said...

In fact, what is expected is a slight revision on how the old fashion M&As used to work.

At Maverlinn, we believe that M&A is just a component (certainly a key one) in the business development process. The corporate development system includes various other components such as a external growth strategy, market screening, post merger integration -- meaning acceleration of value creation.

A detailed presentation covering those issues is expected at the Board level to make sure that the key reasons to invest are shared, understood, debated and eventually agreed upon.

It is always advisable to present alternative solutions as the acquisition of a specific target is not always the best route to ramp up business.

When the decision is made to move forward, it is highly advisable that a specific integration task force takes over to ensure a smooth and fast integration. This means that the next 100 days will be crucial on whether the acquisition is a success or not.

2:51 PM  

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