Topics:   Corporate Governance,Leadership,Risk Management

Topics:   Corporate Governance,Leadership,Risk Management

July 28, 2010

The M&A Litmus Test: Part 1

July 28, 2010

How effective is your board? M&A can be your litmus test. If you are making a buy/sell/merge decision, the experience will reveal your board’s capabilities in myriad areas, especially these:

  1. M&A “IQ”
  2. Fiduciary Duties
  3. Strategy
  4. Information Flow, and last, but not least
  5. Good Business Sense





Today is Day One of your M&A Litmus Test, so we’ll start by testing your board’s…


… M&A IQ.


Does your board know why M&A matters?  The wise board won’t leave mergers and acquisitions to external advisors—or wait until the last minute to bring them in. The decision to buy or sell a company of significant size is clearly a matter meriting board attention. On the sell side, time may not be on your side.

Directors serving on public company boards understand that any public company, by definition, is vulnerable to a hostile takeover (since any person with enough funding can buy their shares on the open market through a tender offer and gain control). In 2010, so far there have been nearly 20,000 announced deals worth more than $1 trillion. Some 7 percent of all announced deals worldwide—nearly 1,400 transactions—were unsolicited (hostile) bids.

Directors serving on private company boards need to understand that sometimes M&A is the company’s only exit strategy when the founder wants to retire and there is no next generation of family and/or employees to continue the legacy.

Next, you’ll be tested on fiduciary duties in the sale of a company.  See you in class!

Shout Out to Sources


Alexandra LajouxAugust 05, 2010

Dear Ken:

This is excellent advice.

1. I like to think of the process as a decision tree: to buy or build >if buy, to keep or sell units A, B, C…; if keep A, to integrate or leave alone; if integrate A, integrate all A123 or part A1 only; if integrate A1, integrate all functions A1abc or part A1a only..etc.

2. A thousand times yes. M&A is a knowledge management issue, for sure.

3. Agreed. It’s a basic principle of internal controls that what can be automated should be automated, to reduce human error. The question of course is what can be automated. I would appreciate your views.

4. Amen again. Boards often form special committees to review a transaction, but the committees often disband after the closing. Why not continue to monitor postmerger management?

Ken BalogAugust 04, 2010

Dr. Lajoux,

You bring up some good points. A few more Board members should also take into consideration are:

1. On the buyside, is the business unit where the acquired company is going to be integrated into operating effectively? Don’t expect an acquisition to fix a BU if that BU is not being run well and/or if its business proposition is not sound.

2. If your company is going to be acquiring additional companies in the future, make sure your company is gaining ‘institutional’ knowledge and not letting all the knowledge gain walk out the door with consultants hired to help.

3. There are M&A automation tools that can help speed up all facets of your company’s M&A processes. Get your company to review and use one. Just as your company wouldn’t try to run their entire accounting system via Excel spreadsheets, they shouldn’t try and run their M&A initiatives using them either.

4. Finally, make sure one or more outside directors has visibility into the M&A programs and processes. Be proactive and not reactive.

Hope these help.