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London M&A and Integration Board Dinner: Summer 2019

Philip Aiken, Chair of Aveva & Balfour Beatty, joined to discuss M&A and integration from the board perspective

Key themes emerged from the discussion:

Culture, culture, culture!

Culture is regarded as one of the biggest hurdles in delivering a successful integration and the promised value creation. Molding cultures requires a thoughtful plan: “In the absence of a plan, the most aggressive culture wins!”

Sometimes it is necessary to create a new identity, as existing affiliations can be difficult to dismantle. “Historically, we were green and they were blue, and there was a reticence to come together. So we abolished both colors and created purple."

Act quickly

It is important to be upfront with all affected employees and approach the integration process with speed (in particular: key leadership appointments, retaining valuable staff, structure, office locations, systems integration), even if some mistakes are inevitably made. “We appointed people very quickly to the top roles and always told the truth.” Once the deal is underway, “it is imperative to appoint a sponsor from each side.”

Moreover, it is necessary to act quickly on those executives who do not believe in the deal or do not fit with the future structure. It’s even more important for the board to support and give confidence to those who stay post-deal.

Strategic fit is key

The stakes are high in terms of price and risk, so strategic fit is absolutely key to success. Ideally, M&A opportunities fit within the agreed corporate and inorganic growth strategy. “It is important not to look at deals in an ad-hoc way.”

Linked to this, boards also want to discuss deals as early as possible and in a holistic way versus a purely financial evaluation. Agreed measures of success are critical and will likely be weighted differently for different deals.

Building trust

“If the statistics say 70 percent of M&A deals fail, do boards give in too easily to management?” Relationships and trust are crucial here. The line between governance and management can be particularly sensitive in an M&A scenario.

The board should encourage CEOs and executive teams to be open, balanced in their analysis, and consult and leverage the expertise of the board. It is also vital for management to show they can deliver value from existing transactions.

How do management and the board best align on a deal? “Cultivate it, massage it and then by the time it comes round you are pushing on an open door.” It can also be important for “boards to give confidence to management on the ‘must do deals,’ even if their track record has not historically been great.”

Are boards under-leveraged?

It is critical that boards are proactive; indeed a recent CEO shared frustrations that M&A strategy originates only from the executive team. “Why doesn’t the board come to me with M&A ideas?”

Board directors should be encouraged to get a first-hand understanding of the target/new business (sites, teams, culture) and to share their insights with the CEO and executive team; the concept of the "free-range Director" applies. However, “ultimately, it is about listening, reflecting and not directing!”

It is important to manage any potential risks that any external consultants/advisors, rumors from with the public markets or social media can exert on potential deals, to pressurize an M&A situation.

The right leadership wins

“At the end of the day, vision, leadership and execution will win the day.”

If there is an anticipated M&A agenda, it is worthwhile for boards to be thinking about whether these skills exist around the table and how the NEDs can best support management to build capability in this area.

The CEO leading the current entity may also not be the right fit for the merged entity.

Boards also need to be astute to the often short-term time horizon of millennials with the long-term success horizon of M&A, and implications for motivations and retention/development.

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