How do boards preside wisely over transactions to avoid shareholder value destruction? | Dr Dean Blomson
It is well-known that the track record for successful acquisition is poor. All kinds of studies with different methodologies generally point to the dangers of acquisitions, some claiming that as much as 70% of deals underperform. So, if the stats are generally correct, this would seem like a massive risk for those governing the enterprise. How do they beat the odds and avoid becoming another statistic of value destruction, by presiding wisely over transactions?In this podcast, Dr. Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses this issue with Dr. Dean Blomson, a highly experienced strategy and transformation advisor. "Failures during an aquisition' are often directly attributable to the lack of priming and the lack of preparation"Transactions can fail before, during, or after acquisition. Dean relates that most failures before and during the acquisition phase can be attributed to a lack of preparation. During the transaction phase of the acquisition, the causes of failure are also prevalent. Dean points out that once a transaction is flowing, specialist firms are often appointed. Dean believes the management of these firms requires a mature, sophisticated executive team and a board working closely to ensure they get cohesive advice. "Rush the due diligence, and you end up stepping on a whole lot of landmines afterwards"Dean explains there are several reasons for failure during the deal-making stage of the acquisition. Firstly, a lack of discussion between the board and executives about the 'go' or 'no-go' decision gatesSecondly, and typically, the due diligence is not properly structured and/or is superficial and rushedLack of coordination with and input from internal teams at the right time, catching them by surprise. "There's what I call a conspiracy of silence…"Dean outlines how the causes of failure reside in the earliest stages, but issues can still arise post-acquisition. Significant cultural mismatches that were not anticipated come to light, or the integration efforts start late or are not well-coordinated, or are bungled. He notes that management, or even the board itself, can lose focus in the post-transaction phase. He warns that if it is felt that the transaction is marginal, there is sometimes 'a conspiracy of silence' on the benefits' reporting and integration progress. "What is it that we're looking for?"Dean outlines three key areas for boards to pay attention to: Clear upfront strategyEarly preparation and planningProper understanding of culture. "Proceed with caution. That's one of the things that boards need to do continuously"Dean repeats that boards need to have justifiable confidence that the executive has prepared and planned well. One thing that stands out for him about the best-performing boards is that they recognise that practice makes perfect. Starting small and learning from all prior transactions with the executive team is important. What worked, what didn't work, what could have been done better? It becomes a deliberate capability-building exercise. The three top takeaways for effective boards:1. Be prepared. Do the foundational thinking and preparatory work2. Be disciplined, follow a process, and stick to the plan. If you said you're not going past the stage gates, or this is a non-negotiable criterion, you need to stick to it. Of course, plans need to be flexible, but if necessary, understand why you need to move away from the plan. 3. Be challenging, your individual and collective thinking.