“OK, great, thanks for the meeting, everyone; it looks like we’re ‘green’ across the board for completing this deal next Tuesday. I just need to pop into the board meeting this afternoon and get the official rubber stamp, then we can tell the banks to prepare the funds transfer. Let’s take the next few days to really make sure we’re ready for Day 1 and integration kick-off.”
…and I bet you can guess what happened next: The one-hour board session became two…then three…until finally the Director of Strategy and M&A emerged ashen-faced to say, “Sorry everyone, it’s all off: even though nothing’s changed since our last presentation to them, the board now tell me they ‘still just don’t get it’. But thanks for all your hard work over the past 6-9 months. Er, um, that’s it.”
Not a direct transcript of course, but nevertheless close enough to not one but several instances we’ve observed over recent years: ones in which, despite rigorous, comprehensive efforts to keep boards fully and objectively appraised of an upcoming acquisition and pushing hard to get their open input and approval to proceed at every step of the way, rejection only came at the very last moment. The question is not, “Should these deals have gone ahead?” but rather “If they were going to fail anyway, why was it at the last hurdle rather than the first or even second?”
Boards have a difficult role to play when evaluating M&A; objectively evaluating the merits of the transaction is the least of their challenges. Most try hard to support the executive team while at the same time ensuring deal momentum doesn’t overwhelm the process. Rejecting a CEO ‘pet project’ can undermine his or her credibility in the business, even though that may ultimately be what’s needed to protect long-term shareholder interest. Killing a deal early is especially difficult when data is scarce, and the debate remains largely driven by assumption and gut feel.
Harder still is the challenge from the other side as CEOs and Heads of M&A work to understand and navigate the different perspectives and agendas of individual board members. While we at BTD are first to highlight the value to businesses of not doing the wrong deals, the worst outcome is for this decision to come later than it had to, typically after months and millions have already been expended. If M&A is to fail, it needs to fail fast pre-close.
To help your board get to the right decision not just at the final review point but at every step along the pre-deal process, here are a few thoughts to consider:
An obvious point perhaps, but we find this problem most prevalent in organisations where the growth strategy of the business remains unclear or undecided. Using a deal on the table to ‘force the issue’ usually fails in our experience. If the board can’t even agree on how this acquisition might support or distract from their strategic goals, it’s likely that the goals themselves are the problem; take a step back and get clarity on ‘question 0’ first.
Some on the board may be looking for opportunity, others for security. Their individual approach to risk and reward will have an ultimate impact on their views on M&A, especially when combined with an understanding of where power and influence lies within the group. If the most influential voices around the table are also those most likely to go for the safe incremental option where risk is all downside and no upside, flush this out at the first, second and every opportunity you have with them. Regardless of whether it’s right or wrong in your view, do what you can to force an opinion from them as early as possible. Which leads to the second consideration…
Even if presented as hypotheses, drawing a clear picture of what the future might look like – good and bad – will make it easier for individuals around the boardroom to voice their hopes and fears around the deal.
Many M&A groups have come out of a board meeting saying, “Well, they’re not openly against us continuing, so let’s proceed; we’ll get them across the line eventually as more detail emerges”. Whether it’s by linking funding of your pre-deal activities to each review point, or insisting on a formal vote on each occasion, insist on overt commitment – or rejection – at each stage.
Board members are people too. Some may tend to withhold their views if they feel they are being ‘pitched’ to or if the mood of the room is heading in the other direction. While there’s no problem demonstrating a clear point of view to the board, make sure they are aware of your openness to different perspectives by providing some of your own.