Strengthening board M&A oversight in an uncertain time

By Trevear Thomas, Joel Schlachtenhaufen, Andrew Wilson, Annie Adams, Deloitte & Touche LLP

Among the matters that have the greatest relevance to the long-term success of a company is its strategy for mergers and acquisitions (M&A). Executive leadership must have the right skills to develop the strategy, pursue the deals, and execute when the time comes. Boards must fulfill their role in overseeing and guiding management’s M&A pursuits—ensuring that management stays aligned with the strategy, conducts effective diligence, and actively guides value-creation efforts through completion.

None of this has been easy, to say the least, with a pandemic disrupting M&A activity and shifting priorities. As the coronavirus spread in the first quarter, dealmaking slowed almost to a halt. Markets grew volatile, and management’s attention became consumed by the response to the crisis, which threw some industries into turmoil and materially affected almost every business.

While M&A activity has begun to rebound, dealmaking is occurring in a changed world. Some companies have been divesting assets to raise cash or to shed operations that no longer fit their purpose. Others in better circumstances have had the luxury of being opportunistic. Few can afford to stand still, given the uncertainty the pandemic has injected into the business environment and the premium it puts on building resilience into every business organization.

To better understand how directors see their M&A role, how their views are changing, and where there might be need for greater attention, the National Association of Corporate Directors (NACD) and Deloitte gathered the views of directors of US companies for the second year in a row.¹ Even with the business environment having changed so dramatically in such a short time, the results of our survey allow us to track the progress boards of directors are making to strengthen their engagement with management’s dealmaking and their efforts to oversee M&A strategy.

We see indications that directors are sharpening their focus on key M&A issues. Survey respondents are confident that they have the skills they need on their boards, and they report regular engagement with M&A topics as part of their ongoing oversight of the organization’s strategy. They are focused on deal valuation, among other key areas, in a market environment where overpaying for assets is an obvious risk.

The COVID-19 pandemic upended many companies’ plans in 2020. As the initial pressures of responding to the crisis have eased, resilient leaders have been considering what steps they will need to take to allow their companies to thrive in the current economic and business environment as well as that of a post-pandemic world. This effort to pivot has to include a reexamination of M&A strategy—and that has to include the board.

Endnotes

¹ Survey conducted Aug. 5–25, 2020, with responses from 165 directors from US companies representing a cross section of industries. A majority of respondents were from companies with $5 billion or more in annual revenue.