Interventions with CAs During Mergers and Acquisitions

Ten of the most qualified and successful directors of the two companies will meet for the first time and will have to make decisions that will directly affect Mergers each of their former companies as well as the future of the new entity resulting from the merger with the help of an M&A advisor.

There is no guarantee that the new managers will agree with the merger, even less about the integration plan, the budgetary restrictions associated with it and the job cuts. They had planned an integration program for the two councils, but nothing has been done yet. The composition and functions of the council have changed considerably. The climate will be neutral at best, but probably hostile. The dynamics within the board will be unpredictable. What could we expect?

Notwithstanding the board’s own integration challenges, it is indeed difficult for directors to exercise an oversight role in the implementation of new acquisitions. Most administrators will have limited access to combined assets and post-merger activities.

At worst, the new post-merger board will be dysfunctional, perhaps due to resentment over the course of the transaction, due to a less than ideal board composition Mergers , given the lack of mismatch of skills and personalities, or simply because of a lack of attention paid to the integration phase of post-merger advice.

Some representative scenarios

The challenges and solutions for post-merger advice vary depending on the nature of the transaction. We consider here four representative scenarios.

Scenario 1

The merger of companies of the same size, public and healthy, whose goals are to create new differentiated companies and to position themselves at a higher competitive level. It is an “amicable” transaction, in the sense that the two companies share the same vision and agree on the objectives of the merger.

Scenario 2

A public company acquires a small, healthy private company. The objective of the acquirer is to add either new competitive competences or a range of products. This is probably one acquisition among a series of others. The acquired business tries to accelerate its growth with the additional capital and market share of the acquirer. Such agreements are common in the high-tech sector.

Scenario 3

A public company acquires a smaller, healthy public company. Like Scenario 2, the buyer’s goal in Scenario 3 is to acquire a new competitive skill or product mix. The intent was inherently competitive, and the target company was not looking for a buyer. Rather, it helped convince the board of the value of the merger (ie, an acquisition that began with an unsolicited or “hostile” takeover bid).

Scenario 4

A public company acquires a public or private company in difficulty. The buyer’s objectives are to acquire new competitive skills or a range of products, and to restore the profitability of the target company.

Composition of the Board of Directors

Among the various studies of boards resulting from mergers, there are some interesting findings about the composition of boards.

In addition, 83% of the directors of the offeror are retained. Boards of directors are often enlarged, and some directors of the offeror are excluded, to place the managers of the target company on them through M&A advisory.

Not surprisingly, the number of retained directors is (proportionally) lower in small target companies.

The reasons for retaining a candidate vary. Sometimes local regulators impose the retention of some seats on the council. For example Mergers, retaining some seats on the Canadian board was conditional on approval of the sale of Nexen Energy to oil giant China CNOOC. the company may find it advantageous to retain the most qualified directors from both boards and those familiar with both companies at the new board table.

The governance committee of the acquiring company, in consultation with the governance of the target company, the two board chairs and the two CEOs, must plan these appointments before the signing of the agreement so that the new company acquires the best board possible. Appointments should be based on a skills matrix, modified to include the skills and experience necessary for a successful post-merger integration process.

What can you tell us about participation?

The knowledge and experience of the leaders of both councils should correspond with the following:

  • Knowledge and experience of the acquirer’s field or business sector.
  • Knowledge and experience of the target company’s field or business sector, if different.
  • Knowledge of the geographical regions of the combined activities.
  • Good knowledge of the acquirer’s business and organizational issues.
  • Good knowledge of the business and organizational issues of the target company.
  • Existing strategic alliances, of the target or the acquirer Mergers, involving the representativeness of the board.
  • Anticipated strategic challenges.
  • Experience and expertise in post-merger and acquisition integration.
  • The basic functional expertise necessary for the exercise of oversight responsibilities (risks and strategies) and committees (audit, governance and appointmentMergers, compensation);
  • Relevant leadership and governance experience.
  • Diversity — it is appropriate here to consider the goals of diversity in all senses, including experience, gender and background.

The acquirer’s skills matrix would be a good start. In any case, this grid presents the criteria for selecting leaders from the two councils. Any gaps in knowledge or skills for which new leaders will need to be selected will be noted.

Finally, the choice of administrators and the potential conflicts or chemistry between the administrators will be determining factors. Some directors, particularly those of the target company Mergers , will take the opportunity to retire from the board. The chairs of each of the two boards Mergers, after discussion with the members of their respective boards, could agree on the structure of the new post-merger board.

Alternatively, the governance committee or a third party may conduct interviews to populate the candidate skills matrix, determine leadership expectations, carefully consider potential dynamics, and submit recommendations.

In both cases, ideally, the composition of the board as proposed will form part of the merger agreement subject to the approval of shareholders and legislators.

Differences between the scenarios

Everything mentioned above applies to the concept of counsel selection in all scenarios Mergers, but the application will vary between scenarios.

In Scenario 1, the acquirer will need to include certain directors of the target company, including independent directors. In most cases, the full board of both companies is retained Mergers, resulting in too large a board and redundant skills. The best strategy would be to identify the skills and experiences most useful to both companies, and make more room, by combining the retirement of some executives and imposing a limit on the expansion of the board.

In scenarios 2, 3 and 4, it is likely that fewer seats will be available to directors of the target company on the acquirer’s board of directors, ie three or fewer. However, Mergers Mergers, as noted earlier, more seats could have been negotiated or may be required by lawmakers.

In Scenario 2, the founder is often chosen for their institutional memory and employee loyalty. The company’s code of ethics, or the corporate culture. The founding entrepreneur, however, is rarely effective as a manager (non-CEO) within a larger company. So a non-executive position on the board should be considered.

In Scenario 3, there is an additional difficulty to consider in supporting this transaction — directors who negotiated the deal to completion are less likely to join the board or be constructive in their supervisory role.

In scenario 4, it is essential to carefully consider the skills of the leadership candidates coming from the target company, and their complicity in the collapse of the company.

Roles and dynamics

Before entering into the agreement or immediately after having done so, the board should: meet; learn about new acquisitions, key opportunities and challenges associated with the merger; establish committee roles; and begin to develop good relationships with both management and each other to ensure optimal performance. Appointments to board committees should also consider the knowledge of both parties, that of the acquirer and that of the target company, in addition to the other factors listed in the board skills matrix. Induction meetings for new members should be scheduled as soon as possible.

If the composition of the board changes as a result of a merger or acquisition, the board will benefit from calling a special meeting (or several) in order to regroup and align before the first official meeting of the board. This meeting should be designed to:

Introduce the directors and explore their respective profiles, including new directors, acquirer board directors and those of the target company.

Meet with the new leadership team and ensure that executives meet with their board members.

“Give the real picture” regarding the strategy, the purpose of the merger and the value of certain key components.

Ensure the transfer of knowledge and focus on the most decisive subjects of the agreement, which could include several meetings with customers and business partners.

Define the role of the president.

Finally, and most importantly, to begin to function as an effective board, that is, to establish a culture and dynamic within the board, from which will emerge the skills and experience of all directors and the decisions that will benefit the company.

It is sometimes advantageous for such a meeting to be facilitated by an independent third party to ensure that all voices are heard and that issues (reported or not) are exposed and addressed, and that any necessary follow-up is noted and approved. Questions related to personalities, board cultures and group dynamics are extremely important, but difficult to perceive internally. Holding one or more of these meetings immediately after signing the deal can be very valuable. While this is a very active time for directors, under pressure to complete the transaction and begin the post-merger and acquisition integration process, investing in board momentum early can lead to greater effectiveness.

A meeting should be held following the first official meetings of the board, no later than the end of the year, to assess the effectiveness of the board.

Differences between the scenarios

The challenge of dynamics within councils is very large and varies considerably from one scenario to another.

In Scenario 1, it is likely that the board has been expanded and that several directors have joined the board of the acquirer, most of whom also sat on the board of the target company. The merger is a major undertaking for the newly united companies, and the board will have to manage a busy schedule as well as make decisions regarding organizational structure and integration.

The board chair and CEO must be prepared to speak to new members in a firm, unbiased voice—there can be a sense of “us” and “them” on the board. Although all members of the council have expressed their support, it would be wrong to claim:

  • That there are no apprehensions, regrets or reservations about the agreement.
  • That everyone believes that the President and CEO will be able to effectively manage an enlarged Board of Directors as well as a new company.
  • That no one feels individually threatened regarding their area of ​​expertise.
  • That the environment promotes mutual respect and the complementarity of personalities.

Careful board composition and committee appointments can help. Nevertheless, the work devoted to merging the councils, including pre-match meetings, is fundamental to the success of this scenario.

Former directors belonging to the acquiring company must respect the acquired company and recognize the value of the new directors.

If the former CEO of the target company becomes a director (particularly in Scenario 2 where the CEO is the founder), the transition to a non-executive position is often a huge challenge. .

The transition of the target company to a new governance requires close and delicate monitoring.

Again, special attention must be paid to “sensitive” issues. Holding special board meetings to clarify and explain these issues can be essential to maintaining effective and ongoing board performance. Even The board will benefit from a meeting to regroup and agree on some “hard. And “tricky” issues to resolve post -merger. Many councils surprise themselves at what they don’t know about each other — skills experiences, aspirations, preferences. And so on. — until the moment when they put their cards. On the table in the context of a challenge as great as that of an acquisition.

Supervision requirements after a merger

It is usually very useful during a post-merger and acquisition period to divide. The board composition process into two phases: transition and value creation.

The objective of the transition phase is to obtain a unified functional structure as quickly as possible. Administrators have an oversight role in each of the three main components of the transition phase:

Definition of a new structure of the organization and the “interim” personnel. The directors should ensure that the new structure corresponds to the objective of the merger and exploits the best talents. Of the two companies, in key roles.

Joint (detailed) planning for the integration of the merger objective. The directors should verify the adequacy of the plan. Ensure that management has determined the indicators. And stages of the integration process and present it to the board afterwards.

Alignment with the purpose of the merger. Directors should track metrics and consider barriers associated with the integration process. And ensure that cost reduction and revenue growth are well managed. And resourced appropriately. Directors, in anticipation of long-term share value. Should encourage post-merger transactions and activities that will create greater value and avoid those that may harm them.

Integration of companies and corporate cultures. Directors should ensure that the culture emerging from. Choices of corporate structure and culture should align with overall strategy and facilitate the merger.

Differences between the scenarios

For example, in acquiring a new product line or new skills in Scenarios 2 or 3. It may not be necessary, or even advisable, to fully integrate the two businesses. It is often preferable to integrate only what is necessary to achieve the synergistic. Effect of the product market and thus retain the culture of the acquired company. In such transactions, it will take less time to achieve the purpose of the merger.

In the case of scenario 4, it may be necessary to act quickly after fusion to “stop the bleeding”.

Either way, directors need to be aware of the process and its challenges. And the board needs to operate at maximum efficiency during this period of considerable risk to the new business.

Success that leads to mergers and acquisitions

Developing an effective post-merger board is an important governance issue. For all companies involved in the process of a merger or acquisition. On the one hand, M&A activity is on the rise again. The restructuring of international companies continues to stimulate competition. Technological advances encourage the merger of companies while other companies become obsolete. These new models will cause companies to restructure. And most of the most successful ones will have engaged in mergers and acquisitions.

On the other hand, a greater concern for good governance of mergers and acquisitions is now more evident than ever. Multiple well-documented governance failures, from Enron to the financial crisis. Have focused attention on the strategic role of boards in general. In particular, the high M&A failure rates in previous cycles, as measured by shareholder return, have alerted directors to M&A activity and their role in overseeing it. hit.

To be most effective at this critical time, boards need to retain the right talent. Transition quickly, and constructively address important. And pressing issues in the post-merger and acquisition integration process.

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