Regardless of whether the parties are public or private, the potential synergies that can be gained from an M&A transaction are among the most common reasons cited by acquirers when justifying their proposed transactions to stakeholders. However, without careful planning and execution, these synergies often fail to have the impact on the bottom line that management expects when deals are first conceived. A recent article by McKinsey & Company suggests that by broadening their deal teams, acquirers may be better equipped to realize these post-transaction synergies.
Problems with lean transaction teams
Typically, executives tend to keep deal teams as lean as possible in order preserve confidentiality. According to McKinsey, as a result of this, these small and isolated teams are apt to misevaluate synergies as they can lack insider information from relevant members of management. Without this information, deal teams are more prone to cognitive biases and are less likely to achieve buy-in from critical stakeholders.
Members of management can add value
In order to avoid this, deal teams should consider bringing in specific members of management who can assist the acquirer in executing its strategy with respect to synergies between the two companies. These individuals can provide critical information and can be especially valuable to validate costs and assumptions as well as to evaluate transition timelines. Furthermore, by involving select members of management, acquirers can begin integration planning earlier in the deal process and will be better equipped to promote a shared culture between the two companies.
Deal team size impacts effective due diligence
Strategically increasing the size of deal teams can also lead to a more effective due diligence process. While overestimating synergies was the second largest cause of difficulties or disappointments in transactions, the failure of due diligence to identify critical issues was the largest cause of difficulties in a recent survey. By bringing in the right individuals with the proper expertise, deal teams can put themselves in the best position to identify problems and, if possible, design solutions to solve them. In addition to internal resources, deal teams should also be sure to bring in external experts early on in the due diligence process. These experts can leverage their deal experience and outsider perspective to help identify risks that internal deal team members may overlook.
While increasing the size of a deal team can also increase the possibility of a confidentiality breach, the potential benefits of a larger deal team should still be seriously considered by acquirers. By using a larger team, acquirers can put themselves in the best position possible to achieve their predicted synergistic gains and to identify critical issues during the due diligence process.
The author would like to thank Mark Bissegger, Articling Student, for his assistance in preparing this legal update.
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