M&A Video Series:
PREPARING A COMPANY FOR THE M&A PROCESS | MAINTAINING BARGAINING POWER DURING THE M&A PROCESS
CEO'S IMPORTANT ROLE IN THE M&A PROCESS | DUE DILIGENCE DURING THE M&A PROCESS
CEO's Important Role in the M&A Process
George P. Shenas, Esq. hosts Robert ("Bob") Brendel, former President and CEO of T-Systems, International, and Gary E. Gist, Chairman of the Board of Intersil Corporation
Part I: As CEO, Exploring the Motivations and Preparation for Entering Into an M&A Transaction
George asks Gary what steps he took to prepare for the purchase from Hughes Aircraft Company of various operating entities under the Palomar Companies LLC umbrella of companies, and Gary explains some of the motivations (as equity owner and chief executive) that drove first the acquisition, and then the divestiture, of this portfolio of companies. Bob talks about the need, as an owner or CEO, to identify the core values of your company before placing your company on the market. George and Bob follow up with an exchange regarding the importance of reality-testing your assumptions and making a transparent assessment of enterprise value.
Part II: As CEO, Supporting your Equity Owner Once a Decision Has Been Made to Sell the Company
George and Bob discuss how establishing sound governance and reporting systems within a company is critical, because a buyer will require transparency and will undertake a very comprehensive review of facts and figures before committing to buy the company. As such, a CEO must be a convincing and knowledgeable advocate for the enterprise so as to support any effort on the part of the equity owners to close a sale. Gary adds that a CEO should be familiar enough with the ‘players’ in the company’s line of business, whether those players are possible financial buyers or strategic buyers, that the CEO can work closely with the investment banker or other advisors to identify the right counterparties. Bob suggests actually ranking the counterparties in terms of pros and cons (as a potential acquirer) in order to prioritize informal conversations that lead to formal negotiations. When asked by George how a CEO can help minimize a seller’s risk or liabilities, Gary replies that a CEO’s most important contribution to the process is to accurately relay operational results to any bidder, as well as to make only those projections which the CEO is capable of meeting each and every month.
Part III: As CEO, Concrete Steps to Help Ensure a Smooth M&A Transaction
George asks how a company should go about putting together an M&A team. Bob talks about the identifying the correct core of 3-4 individuals who will help the CEO and equity owners compile the information required, as well as the importance of incentivizing those individuals. Bob and Gary set forth their somewhat differing views on the practicality, or even desirability, of maintaining confidentiality during the sale process, but Gary agrees that key personnel at the company need to be incentivized properly to ensure a smooth transaction, both before and after the closing. For example, Gary suggests that personnel who remain with the company after the sale might participate in any escrow held back by the buyer for several months or years, which helps align their interests with those of the equity owners who have exited at closing. Bob believes that a CEO’s job during an M&A transaction is to support the equity owners and supply the information necessary to close the transaction. Gary agrees with Bob and emphasizes that the information must be as accurate as possible, because in his experience if the information proves to be false, a buyer will come back to the seller later on, formally or informally, and ask for an adjustment. Bob agrees with Gary that supporting and building trust between the buyer and seller is the key to the entire process, and doing so, coincidentally, helps the CEO meet all of his or her fiduciary obligations.