M & A from the Board Perspective
Are boards or their companies sufficiently prepared for unsolicited take-over bids? Are boards attuned to monitor the pace of an acquisition as a test for whether it is going off-track? Do companies pay enough attention to integrating an acquisition?
You might think that these basic blocking-and-tackling questions would all receive an affirmative response when you are talking about larger companies and experienced boards. You would be wrong.
The National Association of Corporate Directors (New England) program this morning focused on board roles in M&A. The panel examined M&A issues that must be addressed at three stages of the acquisition process: the time leading up to the acquisition, the effectuation of the transaction, and integration of an acquired business once the dust settles.
*Companies are surprised to find themselves a target. A board should try to determine if it is logical to expect that its company has drifted into target territory. A company should have an identified process when “surprised” which includes prompt disclosure to the board by management and an understanding of how important it is to get the deal broadly shopped in the discharge of the fiduciary duty owed shareholders to maximize shareholder value (Shannon O’Brien, on board of First Albany when it was acquired).
* To avoid a surprise from your own management, Frank Stasiowski (PSMJ President, and world-wide consultant to the A/E/C space) suggests that the board ask its CEO at each executive board session, directly, whether there are any "conversations" going on.
*Deals often get re-traded after diligence. Targets feel it is bait-and-switch. Acquirers think it is the logical response to discovering material unknown facts. Marty Mannion (managing director of Summit Partners and long-time M&A guru) notes he is sometimes just thrown out by target management but the re-trade, if indicated by the facts, works about 25% of the time.
*Mannion also cautions that the letter of intent that best fosters the deal will omit matters that are best addressed after diligence and based on the facts of a given case: representations, scope of seller liability, basket of defaults for which seller is not liable. (This point runs counter to advice often given by lawyers who want to wrap up these issues on behalf of client targets to avoid surprise and to avoid argument in the future which may impact deal momentum.)
*It is important to make sure that your human capital does not walk out the door during the disruptive and nerve-wracking deal period, and BJ’s Wholesale CLub CEO Laura Sen believes the key to keeping management and public-facing employees cool and in place is frequent communication.
*After the acquisition, fatigue sets in on the part of the acquirer; the panel seemed unanimous in believing that companies do a poor job in integrating acquired businesses. Stasiowski analogized to a marriage, which requires work once the wedding takes place.
Clearly the sell side of M&A is traumatic and full of pitfalls; that make the buy side dicey -- even if an acquirer is experienced it must deal with the possible drama and confusion emanating from the counter-party. Not discussed was the further impediment of over-aggressive lawyering wherein each paragraph of the deal becomes a fencing match to obtain marginal advantage in drafting. There is a line between zealous representation and becoming a drag on the deal, and the deal that drags often is the deal that dies. In this economy where deal flow is flat in so many sectors, it is a shame to see a deal that is identified and then falls apart for the wrong reasons.