Mergers and acquisition (M&A) strategy has been scrutinized in recent years after many transactions failed to add shareholder value, with poor integration planning being cited as one of the principal causes of failure.
M&As can be a growth accelerator, but they require rigorous integration planning by management and the board. Strategic decisions about M&A transactions inherently involve risk. Boards should be engaged before, during and after the transaction and other important events. Active oversight of the process can help confirm that shareholder value is kept at the forefront through a clear and efficient assessment of the transaction's goals, risks and results.
Boards need to understand all aspects and stages of a significant M&A deal to facilitate the transaction's financial goals and help the organization better manage the risks associated with deal planning, analysis and execution.
An M&A transaction's success is largely measured by whether the ultimate value captured from the deal mirrors or exceeds the value envisioned at the beginning of the process. The purpose of due diligence is to mitigate overall transaction risk through identifying, quantifying and substantiating drivers and value inhibitors. It is also important to recognize the differences, if any, between these and the basis of the anticipated deal value at the beginning of the process.
It is particularly important to assess the target organization's existing internal controls and financial reporting. The board should assess potential areas of risk and how the new entity will perform related activities. At the conclusion of an M&A transaction – particularly one involving a significant acquisition – the board should consider whether changes to overall risk management processes are needed due to an increase in the organization's size or changes to its structure.
Post-merger integration is a critical stage of any merger or acquisition, where synergies are captured or lost and value can be realized or squandered. Boards should consider post-acquisition reviews not just of risks, but also relevant integration milestones and return-on-investment analysis to evaluate the reliability of initial acquisition assumptions.