The responsibilities of a board of directors encompass oversight, strategy, and governance within an organization. When it comes to specific transactions like mergers and acquisitions (M&A’s), board members play a crucial role in safeguarding and enhancing the value of company stock for stockholders. This article explores the key responsibilities of board members on both the buy and sell side of M&A’s, considering the unique perspectives and challenges they face in each scenario.
The Buy Side of Mergers and Acquisitions:
On the buy side of M&As, board members possess a strategic vantage point that allows them to contribute to maximizing stockholder value. Here are three key responsibilities for board members on the buy side:
- Assessing proposals: As stewards of an organization’s strategic objectives, board members must meticulously evaluate proposed acquisitions to ensure alignment with the corporation’s goals. Thorough assessment of the strategic fit, financial implications, and potential risks associated with the transaction is essential.
- Safeguarding resources: A well-structured company ensures that the board has a comprehensive understanding of the organization’s resources, including fiduciary and managerial aspects. Board members are thus well-positioned to evaluate the potential impact of a proposed transaction on these resources and determine if it contributes to their enhancement.
- Ensuring accountability: Board members should ascertain that the CEO, and other key personnel responsible for negotiating M&A transactions, possess the necessary skills and expertise. Additionally, the board must analyze the reasons behind previous acquisitions that did not meet expectations. Effective corporate insurance and risk management should also be incorporated throughout the M&A process to mitigate potential risks.
The Sell Side of Mergers and Acquisitions:
Like the buy side, board members on the sell side play a pivotal role in securing premium returns for stockholders during an acquisition. Here are three key responsibilities for board members on the sell side:
- Planning the selling process: The sale of a corporation varies across companies due to factors such as leadership, disposition, and long-term goals. The board, in collaboration with professional advisors, must outline a well-defined course of action that maximizes value for stockholders.
- Gathering information: Diligence is crucial when selling a corporation to ensure that stockholders receive the best possible value. Relying solely on an investment banker’s advice is inadequate. The board must conduct a thorough market check to explore potential higher bids before finalizing any agreements. Gathering comprehensive information also safeguards against potential shareholder lawsuits.
- Timing the transaction: The timing of a company’s sale can have both advantages and disadvantages for shareholders. The board should carefully assess the optimal time to execute the transaction, ensuring it aligns with shareholders’ best interests. This meticulous approach also mitigates the risk of future litigation.
Board members shoulder significant responsibilities during mergers and acquisitions, regardless of whether they are on the buy or sell side. By diligently fulfilling their roles in evaluating proposals, safeguarding resources, enforcing accountability, planning the selling process, gathering information, and timing the transaction, board members can maximize stockholder value and minimize risks.