Board Governance – Mergers & Acquisitions and Post-merger Integrations
By Kees van der Vleuten and Liselotte Engstam
“I think…….if it is true that there are as many minds as there are heads, then there as many kinds of love as there are hearts” – Leo Tolstoy.
In the current market of disruption and flux, the amount of Mergers and Acquisitions are at unprecedented levels. Beginning of March Digoshen run a deep dive exchange for board members on “Boards Governance of M&A and Merger Integration”. Experienced executive and NED Kees Van Der Vleuten shared valuable insights, we discussed in breakout rooms and jointly on the experience, challenges and practices from board level of M&A.
Kees van der Vleuten has a broad background from Royal Philips Electronics, DHL, Avery Dennison, KCA Deutag GmbH, Stork, Tennet, Fokker Technologies, Keter, Veon and Aon in roles as digital transformation, procurement and merger integration. Since 2017 he was non-executive director (NED) at MET-Pro Foundation including the member of the Audit & Risk Committee. He has executed NED roles at Worldlife Foundation and MAS Dienstverlening in Amsterdam. Kees is mentor of NED-s at INSEAD in France and business advisor at Whitecastle Partners, a global Family Office in Monaco.
Acquistions – but also divestures – are a major step in the growth strategy of a company. Boards play a pivotal role in creating or better not destroying shareholder value (financial performance) and take notice of broader societal, technological and company performance.
Despite the times of uncertainty like pandemic or the war in Ukraine, the market for M&A has increased significantly again according the latest report of Bain & Co (2022). The total M&A market in 2021 has grown to a level of $ 5.9 trillion with a rate of 47%. Apparently, M&A is a vital ‘weapon’ in the growth strategy of companies, however Boards should be aware that roughly 70% of all mergers are failing.
Some companies are well experienced in M&A processes whilst others do mergers infrequently. The latter requires strong Board involvement anyhow. The M&A process in accordance to Bain & Co can be splitted in a few phases: find the deal (strategy, target screening), validate the deal (due diligence, transaction execution) and delivering value (post-merger integration or divesture).
Boards play an oversight- and governance role before, during and after the merger. Ultimately, the Board is the decision making unit of the company and stewards of the shareholder capital. Hence, a very active role is required from the Board in setting the strategic vision, guiding the executive management in the deal-making, delegating authorities, select and elevate executive talent and keep an eye on stakeholder management.
M&A will continue to play a key activity for boards to guide and monitor fort he foreseeable future. Some perspectives to to consider can be found in a recent article by JPMorgan on “Top 10 trends shaping global M& A Activity”
In personal experiences both as executive leader and non-executive board member, merging companies is hard work regardless of the industry sector and the type of company being governmental-, public listed- or private equity owned enterprises says Kees van der Vleuten.
In all cases, the Boards are strongly engaged, have defined their strategic objectives and run a controlled M&A process. Strategic objectives can vary from scope-based approach (‘become number 1 in the market’ or ‘be first tier supplier’) or scale-based (‘safeguard future cashflows’ or ‘leveraging synergies’).
In Kees experience, good M&A processes require proper planning especially when for the post-merger integration phase. Boards and executive teams must think ahead! After celebration of the deal, it does not stop! The hard work begins!
In one of the companies Kees worked for, the Board replaced the current managing director and drove improved financial reporting structures in order to prepare for the upcoming merger a few years later. In other companies, the Board decided to halt acquisition processes and drove the company into a reversed merger process in order to stay a significant player in the industry.
One time, Kees entered a post-merger integration team and we delivered the required synergies but along the way, the cultural dimension and the ICT integration seem to be the most difficult (even neglected) elements in the post-merger integration. Strongly stated, within one company actually the corporate culture was enforced on the acquired companies which makes people leave the company.
Boards must be aware that elements like culture, systems and communication are elements which make an integration successfully. The creation of a ‘zone to win’ consisting of the availability of data, skilled management and strong command center are key ingredients for the success!
Our poll with the exchange participants on the question “Which areas are least well handled by boards” revealed some interesting perspectives.
We found that boards can be better at challenging the deal decision pre-hand – is this really the best for our company? Some questions to guide the board can be found in The role of the Board in M&A by KPMG;
The poll revealed that boards can also improve on monitoring the post-merger integration plan. It starts even before the deal is approved, by carefully reviewing the integration plan, and according to IMD the board asking questions as
- What is the timeline?
- How fast can the company be integrated?
- What are the expected problems?
- Who will lead the integration?
- Will the same team be involved throughout the pre-deal, deal, and post-deal process?
- What are the major milestones?
- What technical problems, IT and others, can be expected?
- How can the two company cultures be aligned?
- Who are the key people from the acquired company to retain?
- How long should an acquirer retain the management of the target company?
- What are the key metrics for measuring integration success?
The board should then ensure to get regular updates on the progress of the integration.
It is eminent that Boards need to have full engagement during the complete lifecycle of M&A and Post-merger Integrations. Depending on the experiences in the Board, a separate committee might be installed. In any case, the Board ‘owns’ this process as part of the overall strategy, purpose and vision.
The Board needs to validate whether the scope, timing and the financials (enough cash!) are right to go into the M&A process. The M&A process requires a synergetic team approach with executive management and within the Board and communication to stakeholders is a key element throughout the full process.
Given the high failure rates in mergers, Boards must focus specifically on the planning and execution of the integration phase, the cultural and human dimensions and the ICT migrations coming from the acquisition of the company. External communication with analysts and other regulatory bodies is required to manage expectations.
It is expected that the Board is on top of the merger and integration and is able to create a ‘zone to win!’
- Mergers: leadership, performance & corporate health (INSEAD-David Fubini, Colin Price & Maurizion Zollo);
- Creating value from mergers and acquisitions – the challenges (Prentice Hill, Sudi Sudarsanam)
- Zone to Win: organizing to compete in an Age of Disruption (Geoffrey a. Moore)
- Considering an acquisition? What boards need to do before, during and after the deal (PWC)
- The critical role of the Board of Directors in acquisitions (Protivity)
- The role of the board in M&A (Financier Worldwide)
- Global M&A report 2022 (Bain & Co)
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