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M&A: Five key items on the board’s agenda

As published in 'NACD Directorship' magazine, November/December 2019

By Joel Schlachtenhaufen and Annie Adams

Merger and acquisition (M&A) activity continues to be a key component of strategy for companies addressing a variety of opportunities and challenges. Corporate boards play a critical role, overseeing management’s efforts to drive shareholder value for every M&A deal. Which raises the question: Can boards be doing more?

NACD and Deloitte conducted a survey of corporate directors to gauge the extent to which boards are equipped to support management, and whether management is prepared to keep boards involved in an effective manner throughout the acquisition process. The survey was completed by 209 directors spanning a diverse range of industries. The results point to five likely areas for boards to expand their M&A role and tighten their focus to help foster deal success.

  1. Challenge management to establish metrics aligned to the deal thesis. Metrics should include accelerating growth, realizing synergies, and managing risk. In the survey, over 41 percent of directors characterize board oversight, approval, and documentation of the acquisition process as utilizing few or no standards. What’s more, 47 percent say that establishing metrics is one of the most challenging activities for the board, and only 69 percent indicate that the board is involved with establishing these metrics. Boards that lend their experience to develop the right performance indicators prior to diligence, and that recalibrate prior to deal signing, can help drive and preserve the value of the merged organization.
  2. Use a deal playbook to drive success and minimize business disruption. Deal playbooks standardize oversight to support success, but only 17 percent of respondents indicate that their board employs a deal playbook when overseeing M&A activity. A good playbook provides standard questions, leading practices, and areas of focus, including pre- and post-deal metrics, risks, and cultural considerations. Coordinating a complex integration without disrupting the business activities of either the buyer or the target can be a challenge. As a tactical guide, a deal playbook establishes a scalable, structured, and repeatable approach to reduce integration risk and capture greater deal value.
  3. Keep the board involved across the deal life cycle. Being active advisors can boost the likelihood of deal success and is consistent with the board’s oversight responsibilities. Eighty-one percent of respondents agreed there should be a greater role for directors to lend their experience to management. However, with only 45 percent saying that they question management assumptions during all phases of the life cycle, and with just 30 percent of boards evaluating deal consistency with risk profile, board involvement may fall short of the desired level of oversight, which could increase risk and jeopardize overall transaction success.
  4. Continue to oversee the transaction through integration. Only 39 percent of respondents cite post-merger execution as part of their board’s oversight activities, yet almost two-thirds (64 percent) believe that this stage calls for increased scrutiny. This is a gap that should be addressed by increasing board involvement in the oversight of transactions post-close.
  5. Maintain M&A experience among members. Half of survey respondents say it is very important that the board include at least one director with experience managing or overseeing integrations. At the same time, just 24 percent of surveyed board members are considering recruiting with this specific qualification in mind. Since 97 percent of respondents have M&A experience, this is likely a skill that many feel they already have on their board.

A full tool kit
M&A continues to be a key tool for companies to meet their strategic goals, and the board is a vital part of that tool kit. Embracing all five of the practices described here can help the board provide the oversight, guidance, and expertise to drive value for the company and shareholders.