August 15, 2018 at 4:53 pm #65829
I would like to know what you think is most important in M&A transactions in terms of Risk Management. What might be the biggest risk from a more practical perspective?September 6, 2018 at 9:27 am #67255
That is a big topic. I would suggest below three points for thought. The risk of a M&A transaction would escalate when there is:
(1) lack of detailed DD plan partly due to insufficient research ground works on the Target and the Target’s industries;
(2) no background check of the shareholders and related companies. For example, has the major shareholder made the Target as a dumping ground of poor performing assets (valuer’s report overstating but not making economic sense) and has the Target entered into long term contracts with related companies?
(3) Overlook of frequent regulatory changes with lagging guidelines from the respective government bodies when the country in which the Target operates. One example is the change of restriction of lending limit to property development companies or transfer of foreign ownership in equity shares of property or land holding companies in some of the Asian countries. Uncertainty in the interpretation of law could be a deal breaker if considered unable to mitigate.September 7, 2018 at 12:31 pm #67357
One more thing, it is don’t rely on history of the target, such as financial performance, loss run report with insurance companies.September 19, 2018 at 2:01 pm #67803
my belief in this topic is that you can’t focus enough on PMI before closing the deal. We went into a transaction on the sell-side a couple of years ago and right after closing the buyer altered every single working contract. Learning from this issue: plan your PMI involving both parties before you sign.October 10, 2018 at 12:57 pm #68871
a detailed and well founded risk management has to be part of a good DD. It should cover all topics of the DD – from my perspective it has to be managed in the same way as risk management in a big project. But to answer the question precise, the biggest risk in my point of view is to underestimate the soft factors. A DD covers all the hard facts in a structured way and identifies risks and actions, but the soft factors for the employee, the owners and at least even the expectations and the fears of the employees on the buyer side are containing a lot potential risks.October 17, 2018 at 7:50 am #69726
Dr. Christopher KummerKeymaster
I think that often companies do not make enough use of the Due Diligence phase. As we discuss in our DD modules there are so many different areas that could be covered. However, Due Diligence as such is also already a Risk Management measure, if conducted the right way.December 16, 2018 at 8:23 am #73606
I think that there should also be a DD done on the financial impact of the investment in the target company.
I have seen one acquisition where hybrid instruments like RCPS was used. The Buyer side was not familiar with IFRS rules and the very instrument that they used to invest in the target company resulted in a huge expense after they took over. A pity!January 3, 2019 at 9:57 pm #74705
All of the topics discussed above are important. What comes to me is having an air-tight Purchase Agreement with adequate indemnity and insurance. Of course, in order to ensure this, proper due diligence is critical to uncover any risk or red flags at the onset.
And in order to conduct a thorough due diligence, a company must ensure qualified reqpresentation from all functions are engaged and aligned.January 14, 2020 at 5:11 pm #104451
My opinion would be understanding the culture of the target. If the cultures do not fit, there will be significant resistance to new initiatives and this will significantly impact the bottom-line. At the end of the day, you need people to work together in cohesive teams to achieve goals. The best systems, technology, and potential growth due to innovative ideas won’t mean a thing if people can’t work together due to a culture clash.November 3, 2020 at 8:41 pm #114493
I feel it is important to pay attention to culture and change management. Making sure there are great retention strategies in place for employees is key.
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