Wednesday, November 24, 2004

Increasing Board of Directors M&A Responsibilities

According to Ian Cookson (Corporate Finance Director at Grant Thornton LLR), as a result of recent higher levels of governance, both in the courts and by new legislation such as The Sarbanes-Oxley Act of 2002, directors are likely to become increasingly involved in acquisitions, including evaluating transaction strategy and post-acquisition integration plans.

Cookson (iancookson@gt.com) recommends the following useful shopping list in the "Financial Excutive" of Oct2004 for Key Responsibilities of the Board of Directors during an M&A:
  1. What are the integration plans?
    (Short-term actions, Communication plans (immediate and ongoing), Synergy delivery plans (and likelihood they will be
    achieved), Internal controls compliance plan, Individuals accountable)
  2. Is the strategic rational robust?
    (Closeness of fit with existing business, Acquisition's ability to leverage strengths and resolve weaknesses, Do economic realities match the story?, Other targets/options explored)
  3. How will we manage implications of people and culture?
    (Closeness of cultural fit, Implications for future ways of working, Retention and rewards for key people, What is it that makes the business successful?, How this wilt be retained and built on?)
  4. Viewing risks (in above) in context of price
    (Valuation, comparables, financing structure, Fairness opinion is independent, Due diligence is robust and directed to uncovering potential liabilities)
  5. Board litigation protection
    (Process, deliberations and analysis documented, Use of independent experts)
  6. Value added by board members
    (From personal experiences, Not simply monitoring management, Balanced perspective on weighing risks and rewards)

It is expected from board members to add considerable value to the above areas and to bring additional perspective to balancing the risks and benefits of the acquisition. If you're in an M&A trajectory right now as a Director and you're starting to feel a little bit uncomfortable: don't worry: Mr. Cookson expects an expanded role of independent advisors to the board likely to follow suit, moving well beyond fairness opinions into the above areas ;-)


Wednesday, November 17, 2004

CF specialists join professional services firms

What do you do when you've clocked up 10, 15 or more years' experience at an investment bank and decide it's time for a change? An article in Euromoney (Oct 2004) reports on the apparent growing popularity among investment bankers in Europe to take off to a professional services firm. These companies, intent on expanding CF and transactions services teams, have been snapping up banking talent and are seeking more.

KPMG hired Stephen Dunn from the leveraged F. department of Sumitomo Mitsui Banking as manager in its debt advisory team to provide advice on structuring new debt issues, refinancing existing obligations, structured F., securitizations and leasing products. KPMG also added four bankers to its project F. team. When it comes to advisory work, particularly in mergers and acquisitions (M&A), the professional services firms are seeing a decent amount of deal flow where the investment banks are floundering. The amount of activity around each transaction has increased dramatically.

Deloitte is looking at bankers with expertise in vibrant M&A sectors where the firm can further expand its business or at those candidates that have a good track record in bringing in new deals.

PriceWaterhouseCoopers has more than 2,4000 staff in its transactions services businesses alone, bringing together M&A bid support and defence, due diligence and structuring.

And Ernst & Young says the amount of activity around M&A transactions has increased dramatically.

The downside is even the most senior hires aren't going to have the earnings potential they might expect at an investment bank but on the other hand there is more job security and therefore less chance that salaries and bonuses will fluctuate from astral to zilch in a business cycle. People who have made the move argue that it is also a less competitive, confrontational environment. So if you'd like that: what are you waiting for?

Tuesday, November 02, 2004

Dealmakers and Value Creation

Don't miss the article on dealmakers and value creation by Danny Ertel. He writes in the Harvard BR of November 2004 that most competitive runners will tell you that if you train to get to the finish line, you will lose the race. To win, you have to envision your goal as (just) beyond the finish line so you will blow right past it at full speed.

That makes good advice for managers, especially when you're dealing with complex negotiations such as in alliances, mergers, acquisitions and outsourcing. In corporate finance it often pays out to make sure both parties interests are aligned, even if that means leaving some money on the table. The most expensive deal is the one that fails... A dealmakers attitude can be killing for long-term value creation. Ertel provides five tips that can help a negotiation team to work with the right (the-real-value-is-created-during-implementation) mindset:

  1. Start with the end in mind
  2. Help them prepare too (surprising or overbluffing the other side does not make sense)
  3. Treat alignment as a shared responsibility (if your counterpart's interests are not aligned, it's your problem too)
  4. Send the same one message to both implementation teams
  5. Manage negotiation like a business process (prepare in a disciplined way and conduct post-negotiation reviews)