Many large corporations depend on M&A for growth and executives can boost the value that deals create. But poorly executed M&A can saddle investors with weak returns on capital for details. In fact, the margin between success and failure is slim.
Many Boards are reluctant to cross the line between governance and management. The level of engagement is often outside the comfort zone for some executives and directors. As such, they miss opportunities to help senior executives win at M&A.
There is a need to modernize the Board’s role in M&A. Modernizing the role of the Board in M&A can result in the alignment of the Board and management on the need for bolder transactions with more upside potential. Further, this is essential in achieving a competitive advantage.
There are 3 core opportunities for the Board to play an impactful role in M&A.
The 3 core opportunities can promote greater Board engagement. When this happens, discrete deals can be converted into ongoing deal processes and dialogues that can deliver greater value from M&A.
The potential of the 3 Core Opportunities to embolden the role of the Board in M&A is great. Organizations just need to have a good understanding of each core opportunity and the underlying key areas or dimensions of each key area. Let us take a look at the 1st Core Opportunity: Potential for Value Creation.
The Potential for Value Creation has 3 critical key areas that can challenge that lead opportunistic transaction to succeed. One critical key area is Strategic Fit.
Strategic Fit is key to determining why a company is a better owner than competing buyers. Deals driven by strategy succeed more often when they are part of a stream of similar transactions that support that strategy. This is a key element in Strategy Development.
How can we enhance the role of the Board relative to this key area? The Board can play a vital role in clarifying the relationship between a potential transaction and strategic planning. They are also in the best position to define how the deal will support organic-growth efforts in target markets and provide complementary sources of value creation.
The other key areas under the Potential for Value Creation are Financial Statements and Risks vs. Rewards. The Financial Statements is a key area that can correct the Board’s tendency to put emphasis on price-to-earnings multiples which can be limiting. The Risks vs. Rewards, on the other hand, is a key area that challenges the Board to acknowledge uncertainties in pro forma.
The other 2 Core Opportunities also have their own essential points or dimensions the Board must focus on. Only then can these core opportunities be of the maximum potential of modernizing the Board’s role in M&A and gaining the greatest value.
Interested in gaining more understanding of achieving Board Excellence through M&A? You can learn more and download an editable PowerPoint about Board Excellence: M&A here on the Flevy documents marketplace.
Are you a management consultant?