The Art of the Deal: Training Mergers and Acquisition Teams

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Think your company could do a better job handling mergers and acquisitions (M&A’s)? You’re not alone. Companies across the U.S. are adding a new staple to their training and development offerings: M&A training. To prepare for the next wave of merger activity, these companies are making sure their teams are well-versed in M&A processes, roles and responsibilities, and possible roadblocks before deals are undertaken.

Three overarching goals have emerged as the foundation for effective M&A training. They appear simple, but each plays a critical role in the success of future deals:

Establish and standardize the M&A process according to your organization’s unique needs and structure.
Identify deal team members and functions, create procedural guidelines and timelines, determine communication methods, and set financial reporting measures. With a process in place, team members can work quickly, easily, and collaboratively when the time comes. Advance preparation also allows you to test the system and tweak it as necessary without having to learn from costly mistakes.

Equip team members with the knowledge they need to get the job done.
This includes providing a thorough background in what to look for in due diligence, market best practices, technical rules and regulations, contingency planning, possible integration issues, etc.

Leverage existing knowledge and create unity of purpose.
Understandably, team members will have varying degrees of experience with mergers and acquisitions. Training provides a unique opportunity for intra-company learning, combined with expert outside guidance and counsel.
Who Should Consider This?

Companies who typically participate in M&A training are either frequent acquirers who do at least one or two larger deals per year or a string of smaller deals, or companies that plan on becoming frequent acquirers in the near future. In all cases, M&A activity is an integral and openly stated part of their core growth strategy. Most importantly, these companies recognize the value of advance planning and staying current in a changing marketplace.

Training should not be viewed as an exercise for novices. The fact is, many of the companies that participate in training sessions have a proven record in the M&A arena. Even the most experienced companies recognize a need to stay current, improve their processes, and keep employees abreast of the latest M&A strategies.

How It Works

Training can be customized to meet corporate needs. Some companies, particularly those in which HR plays a very prominent role, offer HR-only sessions. These sessions, attended primarily by HR department deal team members, typically focus on key people issues in M&A situations. Possible topics include HR liabilities in due diligence–underfunded pension plans, treatment of stock options, golden parachute provisions, compliance, and discrimination, for example-—and key HR-related integration activities, such as culture creation, retention programs, migrating benefits, and rules on reduction in force.

Most companies, however, choose to train cross-functional deal teams composed of members from a number of different departments. The focus here is on building a common platform, establishing processes, and identifying roles so each team member knows not only what’s expected of him or her at each step, but also the roles of the other functions and how they can better support one another.

“Surprisingly, participants are less interested in learning about their own roles than those of other groups,” stated Hewitt Corporate Restructuring and Change consultant Dave Kompare. “Legal wants to know about valuation and pricing. HR wants to know about the offering memorandum and purchase agreement. Finance wants to know about the integration of reporting systems. This training allows people to see how their role fits into a much bigger picture.”

Although HR often plays a lead role in facilitating discussions and exercises, buy-in from all groups–especially business developers and the financial people–is critical to the success of any proposed training. In fact, dealmakers and CFOs are the most cognizant of the value of a well-prepared and process-oriented team. Content may be altered to meet time constraints, but cross-functional M&A training generally takes two days. In those two days, speakers brought in from investment banking firms, outside corporate counsel, and auditing and consulting firms share their perspective and set the context for discussions. Standard agenda items include an overview of common synergy objectives and deal drivers, combined with a high-level presentation of the company’s M&A philosophy and strategy. Participants are walked through the deal process, due diligence, and key M&A issues, such as an antitrust overview, valuation/pricing, types of deals and purchase agreements, employment law, and international considerations.

Learning by Doing

One of the highlights of M&A training is due diligence simulation. Participants are divided into teams and given detailed information on a fictitious acquirer and target company. The information is presented in a format and manner similar to what a due diligence team might find in a data room. The teams are given an overview of data room procedures and policies and are asked to review the data and report back on their findings.

Hidden within the data and documents is about $150 million in potential liabilities for the teams to uncover. But, as in an actual data room, not all the information they need may be at their fingertips. “We test not just their ability to review the information provided, but their foresight in asking for other significant information, such as employment contracts and retention arrangements, which we did not include,” said Kompare. “You’d be surprised by how many teams neglect to ask or feel uncomfortable requesting additional information.”

The results can be a bit humbling. On average, even the most experienced deal teams find only around 70% of these hidden liabilities, leaving nearly $50 million in liabilities unaccounted for, and resulting in a significantly higher purchase price. “This exercise is a real eye-opener for the teams, because it gives them a chance to see how small oversights on their part can flow right to the bottom line, ultimately jeopardizing deal success,” said Kompare. “But, we teach them where to look and how to look, and the percentage of liabilities identified increases dramatically, translating into significant potential savings.

Interviews with key executives are a big part of the simulation. Trainers play the roles of key executives at the target and acquiring companies, and participants ask them pertinent questions regarding background on leadership styles, culture fit, high potentials, etc. At the end of the interviews, participants are critiqued on their thoroughness, approach, and ability to distill information.

Now for the Really Tricky Part

While due diligence plays a huge role in M&A, the most difficult part of any deal is integration. This is where many deals that looked great on paper break down, often irreparably.

“We’ve seen a major shift in M&A training focus from due diligence to integration,” said Kompare. “When we first began doing the training, companies were really intent on saving money through more thorough due diligence and better pricing. Now, experienced companies have improved their due diligence and closure success, but they now realize that the real value opportunity lies in more effective integration.”

The integration simulations typically provide a working group session that allows participants to work through real-life integration challenges. Participants develop work plans, identify functional interdependencies, and discuss practical approaches to common integration challenges such as staffing and selection, treatment of outstanding equity, development of retention programs, and integrating diverse cultures.

Going Global

Global considerations can play a key role in M&A training. Global M&A training highlights non-U.S. considerations, such as work council relations, transfer of undertaking obligations, and regional employment regulations. Featuring multilingual data rooms and numerous cross-border issues, the sessions can include tailored due diligence and integration simulations around target operations covering multiple countries.

“Because of vast cultural differences, complex regulatory issues, and language variances, global acquisitions are much more complex than their local U.S. counterparts,” noted Kompare. “The regional and global training sessions sensitize participants to technical issues and the complexities of project management and communication in multinational integrations, while providing practical advice for task management and the achievement of targeted global synergies.”

The Outcome

Hundreds of surveys and studies have proven that the vast majority of mergers and acquisitions fail. While M&A training makes no promises about making mergers and acquisitions less daunting or stressful, it does promise the peace of mind from knowing your team is well-prepared for the tasks ahead.

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