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The Board’s Perspective on M&A

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Once corporate boards were largely figurehead positions. No longer.

Today, they can help increase the success ratio of corporate activities like M&A by engaging in critical aspects of the process. Learn critical ways the board can improve the results of an M&A deal.

Read The Board’s Perspective on M&A: From Due Diligence to Day 1 and Beyond for more insights:

+ DOWNLOAD THE WHITEPAPER

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Many M&A deals fall short of expectations

Companies and their boards are sensitive to shareholder concerns about M&A. Yet, KPMG has found that a transaction’s results may disappoint for numerous reasons, including:

Valuation
Overreach

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Valuation
Overreach

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Valuation Overreach:

It’s important for the board to probe deeply into the potential value created by the deal and its strategic fit— and make sure that the discussion is data-driven to the extent possible. The board should make sure to understand if valuations are consistent with industry norms, and that the value creation is realistic for the market.

Over-Optimistic
Projections

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Over-Optimistic
Projections

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Over-Optimistic Projections:

Are realistic assumptions being made about the market and competitors? What do projections assume about customer behavior and loyalty? Where are the target's products in their life cycle? How dependent is the deal’s success on the people, customers, key vendors and suppliers of the target company?

Failed Due
Diligence

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Failed Due
Diligence

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Failed Due Diligence:

A rigorous due diligence process is an essential element of any successful M&A transaction. For example, you must understand the target’s key risks, including financial, operational and market risks. Do you understand possible cultural issues and roadblocks?

Poor Post-Merger
Planning

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Poor Post-Merger
Planning

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Poor Post-Merger Planning:

An inadequate post-merger integration plan is a huge risk to any deal. A very detailed and robust plan needs to be developed early on. It needs to be adjusted during the due diligence process as risks are identified.

Valuation Overreach: It’s important for the board to probe deeply into the potential value created by the deal and its strategic fit— and make sure that the discussion is data-driven to the extent possible. The board should make sure to understand if valuations are consistent with industry norms, and that the value creation is realistic for the market.
Over-Optimistic Projections: Are realistic assumptions being made about the market and competitors? What do projections assume about customer behavior and loyalty? Where are the target's products in their life cycle? How dependent is the deal’s success on the people, customers, key vendors and suppliers of the target company?
Failed Due Diligence: A rigorous due diligence process is an essential element of any successful M&A transaction. For example, you must understand the target’s key risks, including financial, operational and market risks. Do you understand possible cultural issues and roadblocks?
Poor Post-Merger Planning: An inadequate post-merger integration plan is a huge risk to any deal. A very detailed and robust plan needs to be developed early on. It needs to be adjusted during the due diligence process as risks are identified.

Boards can help deals succeed

In particular, they can add value early-on and after the deal closes. For example, board members should:

  • 1

    Test alignment of the deal with the company’s strategy, and challenge the value-creation potential.

  • The board must understand its company’s strategy, including its organic and strategic growth opportunities. In addition, they should be aware of key “gaps”—e.g., in talent, technology, new products and markets—and whether the company’s deal pipeline has the potential to fill those gaps.
  • 2

    Be sensitive to possible management bias and don’t fall in love with the deal.

  • Maintain the board’s objectivity, be sensitive to possible management bias, and ensure that any concerns raised by the due diligence and integration teams are not overshadowed by pressures to get the deal done.
  • 3

    Monitor key aspects of the due diligence process closely before approving the deal.

  • Are there potential cultural mismatches, particularly across geographies? How aggressive are internal forecasts for growth and customer retention? The more robust and invasive the due diligence process is, the higher the likelihood of its success.
  • 4

    Examine the post-merger integration plan in detail, and track performance against the plan.

  • A detailed, robust post-merger integration plan should be developed early on and adjusted along the way. Metrics to monitor performance must be clearly established. Even with a robust plan, contemplated synergies are sometimes not achieved and integration can be much harder than envisioned.
  • 5

    Ensure the company has a rigorous M&A process and the right M&A leadership.

  • Management should have a rigorous M&A process that incorporates a well-thought-out methodology for each phase of the transaction—strategy, valuation, financing, due diligence, synergy identification and capture, closing the deal and integration.
  • 6

    Build a diverse board with different perspectives.

  • Build a diverse board with different roles and perspectives. Having the right composition—a diversity of director backgrounds, perspectives, skills and experiences—can greatly enhance the board’s effectiveness.
  • 1

    Test alignment of the deal with the company’s strategy, and challenge the value-creation potential.

  • 2

    Be sensitive to possible management bias and don’t fall in love with the deal.

  • 3

    Monitor key aspects of the due diligence process closely before approving the deal.

  • 4

    Examine the post-merger integration plan in detail, and track performance against the plan.

  • 5

    Ensure the company has a rigorous M&A process and the right M&A leadership.

  • 6

    Build a diverse board with different perspectives.

The board must understand its company’s strategy, including its organic and strategic growth opportunities. In addition, they should be aware of key “gaps”—e.g., in talent, technology, new products and markets—and whether the company’s deal pipeline has the potential to fill those gaps.
Maintain the board’s objectivity, be sensitive to possible management bias, and ensure that any concerns raised by the due diligence and integration teams are not overshadowed by pressures to get the deal done.
Are there potential cultural mismatches, particularly across geographies? How aggressive are internal forecasts for growth and customer retention? The more robust and invasive the due diligence process is, the higher the likelihood of its success.
A detailed, robust post-merger integration plan should be developed early on and adjusted along the way. Metrics to monitor performance must be clearly established. Even with a robust plan, contemplated synergies are sometimes not achieved and integration can be much harder than envisioned.
Management should have a rigorous M&A process that incorporates a well-thought-out methodology for each phase of the transaction—strategy, valuation, financing, due diligence, synergy identification and capture, closing the deal and integration.
Build a diverse board with different roles and perspectives. Having the right composition—a diversity of director backgrounds, perspectives, skills and experiences—can greatly enhance the board’s effectiveness.

How satisfied are you with your board’s say in M&A?

This is what we found when we asked corporate board members how they felt about their roles in executing M&A transactions in specific areas. A significant percentage—over 30 percent—of board members did not think their role in the deal process was optimized.

  • 0%
  • 20%
  • 40%
  • 60%
  • 80%
  • 100%

Monitoring post-merger integration activities:

° 45% Somewhat or Very Satisfied

Evaluating proposed M&A transactions:

° 61% Somewhat or Very Satisfied

Challenging or testing management’s M&A strategy:

° 64% Somewhat or Very Satisfied

Discussing with management options beyond the ‘preferred’ transaction:

° 66% Somewhat or Very Satisfied

Shaping the company’s M&A strategy:

° 72% Somewhat or Very Satisfied

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  • 20% ··
  • 0% ··
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The C-suite and board sometimes have different perspectives on the deal

The result can be a deal that takes both views into account—and has a better chance for the success you need.

  • The C-Suite says:
    The Board ASKS:
  • We have identified an acquisition target.

    Is it consistent with our growth strategy?

  • We need to do the deal.

    Why should we do the deal?

  • We need to grow revenue.

    How will this deal grow shareholder value?

  • We have a sound valuation model.

    How much revenue and cost synergies are we giving away?

  • We have a synergy plan in place.

    Can we execute the synergy plan more quickly?

  • We have a detailed integration plan.

    Do we have the right resources to execute the plan?

  • This deal fits our culture.

    How are we going to preserve and grow the people and business?

How can boards add value to minimize a deal’s risk?

  • Establish the right mix of backgrounds, perspectives, skills and experience for the board to best serve the company and provide the alternate perspectives that can help mitigate transaction risk.

    The right board composition is critical in enhancing its effectiveness and value-add in the company’s M&A process.

  • Assure that the deal’s potential value is aligned with the company’s long-term strategic goals.

    Generally, deals in sync with long-term strategic goals have higher success rates than more ‘opportunistic’ transactions.

  • Closely monitor key risks, cultural issues and management’s capacity to execute its strategy.

    What do projections assume about, for example, the market and competitors, customer behaviour and loyalty, and the target’s position in its products’ lifestyle?

  • Determine whether there’s a well-thought out methodology for each phase of the deal.

    Without a rigorous and finely honed approach from the M&A management team, there are risks that can unfold at every stage of the transaction, from valuation and financing to closing the deal, and integration.

  • Ensure the synergies, cost, savings and other objectives are achieved during the post-merger integration.

    Remember: An inadequate post-merger integration plan is a huge risk to any deal.

Read The Board’s Perspective on M&A: From Due Diligence to Day 1 and Beyond for more insights:

+ DOWNLOAD THE WHITEPAPER

Helping boards and their companies capture more value— and minimize risks—in M&A transactions

KPMG’s Transactions & Restructuring team is the place to turn for advice in your M&A transaction. We can support you with services that cover the full life cycle of a deal — and help you create the value you seek, while avoiding unnecessary surprises.

To learn more about how we can assist with your specific needs, call:

Daniel Tiemann Lead, Transactions
and Restructuring
312-665-3599 dantiemann@kpmg.com
Tracy Benard Accounting Advisory Services,
Americas and U.S. Partner in Charge
212-872-6073 tbenard@kpmg.com
Rob Coble Partner, Transactions &
Restructuring
404-222-3014 rcoble@kpmg.com
Phil Isom Lead, Corporate Finance
and Restructuring
312-665-1911 pisom@kpmg.com

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