Four Ways a Board Can Help Manage a Merger
BY Ralph Ward
A fidgety economy is doing nothing to slow the tide of mergers and acquisitions, but it is making more and more of the last decade' s brilliant deals look less than brilliant over the long term. Good postmerger integration can' t salvage a dumb deal, but poor integration can sink a good one. How can your board build in a strong merger oversight and integration system, and what are the most common deal sinkers to avoid?
While any smart board will review the merger or acquisition agreement closely, it will also insist on knowing about any " side deals" that management struck in addition to the main deal. Robert Gilbreath, president of Atlanta merger software firm Forward Thinking, notes that deals often include informal codicils to keep everyone happy. " They may agree to give your side the VP of sales slot if they get the VP of manufacturing, for example." Divisions, plants, or markets might be some of the other chess pieces involved. The problem arises when the board doesn' t know about these side deals and later either finds their hands tied or that someone on the losing side is unhappy about a reneged pledge. " The board needs to insist to management that they know about all side deals as part of the due diligence process."
Even though most mergers require some layoffs, the current tight U.S. labor market makes retaing talent a crucial concern in any deal. " Retention of top talent should definitely be a concern of the board," says Gilbreath. " For example, you may find out that the departure of one key person will lead to three-quarters of the department leaving." Boards should insist on a postmerger plan that addresses this issue, particularly the effect of these " keystone" managers jumping ship.
Another postmerger human resource concern involves balancing pay scales. " A major issue is when you have positions at the two companies that were roughly comparable, but one was fairly highly paid, and the other low," warns Robert Sahl, a partner with WMS management consultants. The board should, at least through the integration, be more involved in the CEO' s pay-setting plans for management to make sure that the new unified pay system " positions us where we want to be in the marketplace, and to know what it will cost us to get there," Sahl says. He advises that the board seek a pay-setting scheme that combines job measurement and market pricing rather than solely one or the other.
This is more premerger than postmerger, but it shows the board' s increasing role in deals. Gilbreath finds that " boards are growing more strict on the format and quality of information they see, and demanding better due diligence. Nowadays they' re more willing to say wait a minute." He points to the case of Coca-Cola passing on the acquisition of Quaker Oats as an example of a board willing to tell management thanks, but no thanks.