Corporate dealmaking in the old days (pre-2002) was a lot different, I know I was there - CEOs called all the shots, championing deals along with their investment bankers and sell-side research analysts. Acquisition strategies didn't exist - things were changing too fast, valuation was an ever-changing art, due diligence a formality and integration irrelevant - acquired companies were better off left alone. Synergies were most often revenue related - companies didn't buy other companies to enhance their products (that would be an admission of inferiority), they bought complementary products and services in areas they often knew little or nothing about. Corporate boards seldom asked any questions, and there was no accountability after the close regarding the claims and promises made along the way. In short, deals were opportunistic not strategic.
We've come a long way in a very short time - written acquisition strategies are prevalent among most public tech companies today, and these strategies rely on the input, knowledge and ideas of numerous senior managers throughout the corporation. The strategy process often identifies and ranks targets in addition to establishing valuation parameters. Potential deals coming from outside the company are vetted against the strategy and target lists prior to consideration. Before moving forward with an outside opportunity, the corporate development team must show that it has compared the deal to other possible transactions or options. When the acquisition process starts, integration planning also begins, with lengthy discussions on how to achieve cost synergies. Due diligence is much more tactical, with walk-away points built into the process. Boards are more involved, even on smaller deals, with some setting up M&A committees. Boards are informed earlier and on a much more frequent basis about acquisitions in progress. Board members ask difficult questions and review diligence findings and integration plans prior to closing. CEOs are no longer the champions of deals, but instead gatekeepers, making sure that everyone has performed their roles adequately. Even Wall St. analysts are pushing for more specific post-deal milestones and post-merger segregated reporting and transparency.
Are you, your board or your investment bankers prepared for this new process?
Comments