A guide to mergers and acquisitions

by Stephen Conmy on Feb 8, 2023

guide to mergers and acquisitions

In today’s business environment, mergers and acquisitions are becoming increasingly common. While these transactions can bring many benefits, they can also be complex and challenging to manage.

Corporate governance is critical in ensuring companies can successfully navigate the complexities of mergers and acquisitions. This guide will explore corporate governance’s role in these transactions and discuss how effective practices can help ensure a smooth transition.

The goals of corporate governance 

Corporate governance refers to the internal structures and mechanisms that govern a company, from its decision-making process to its ethical standards. It plays an increasingly important role in mergers and acquisitions to ensure that any new entity created due to the merger or acquisition complies with competencies, policies and procedures.

The goal of corporate governance is to help manage potential risks. From HR management to risk management, corporate governance helps develop detailed plans for efficiently merging two entities while also considering potential risks associated with such change. It also focuses on shareholder value, regulatory compliance and operational effectiveness to ensure successful outcomes and maintain continuity between the two merging companies.

The benefits of good governance practices 

Mergers and acquisitions are essential times for all companies involved. They involve the combining of assets, resources and personnel from multiple entities. While there can be many benefits to such a move, mergers and acquisitions must respect the needs of all stakeholders. Good governance practices ensure this happens by enabling communication, transparency, ownership accountability and risk management.

These practices create an open platform wherein all parties can openly discuss and participate in decisions that impact the organisation’s future performance, reducing the chances of mistakes or financial losses due to misjudgments or lack of information.

Good governance practices also provide a solid foundation during a merger or acquisition process, ensuring everyone is on the same page during rapid transformation.

Read more: How good governance can prevent fraud

How to create an effective governance structure during a merger or acquisition

Mergers and acquisitions are a crucial part of business growth and restructuring but can create unique challenges in terms of governance. A successful merger or acquisition requires careful and effective planning to choose the proper governance structure for the new venture.

Some tips worth considering include taking a granular approach to managing multiple regulations and maintaining impartiality between all shareholders.

Other recommendations are to invest in communication tools and digital collaboration methods for maximum efficiency and streamline decision-making processes. For example, use a committee-based approach to management so that all stakeholders can be heard and involved in the process.

How can directors comply with their fiduciary duties during mergers and acquisitions?

Directors and officers of a business can ensure that they are fulfilling their fiduciary duty during mergers and acquisitions by creating systems which provide all decisions taken are beneficial for the business.

These systems allow directors to analyse data and research when making decisions.

Also, to understand the risks involved with merger or acquisition opportunities, identify potential conflicts of interest, create a sense of transparency throughout the process, and consider factors such as Fair Market Value (FMV).

Read more: What are fiduciary duties? 

Examples of successful mergers and acquisitions

Mergers and acquisitions can be complex and challenging to manage, but they can be incredibly successful when done with the proper corporate governance guidelines. In successful mergers, companies recognise the value they can bring to each other by coming together and identifying clear objectives before completing the process.

To ensure that both organisations prioritise common interests, establish solid corporate governance procedures such as secure checklists for compliance matters and a framework for identifying potential issues.

A few well-known examples of successful mergers and acquisitions that have implemented strong corporate governance practices include:
• The union between Verizon Communications and MCI Worldcom
• The Walt Disney Company’s acquisition of Pixar Animation Studios
• Microsoft Corporation’s purchase of Skype

These mergers were successful because both companies clearly understood what the other was bringing to the table and planned to meet their goals as a combined entity. By investing in strong corporate governance practices such as risk management, companies can ensure successful outcomes from a merger or acquisition.

In conclusion

Mergers and acquisitions are complex processes that require strong corporate governance practices to ensure success. Companies must consider developing a secure checklist for compliance matters and establishing frameworks for identifying potential issues. They must also invest in communication tools and digital collaboration methods.

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Diploma in Corporate Governance

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Diploma in Corporate Governance

Enhance your career as a director. Develop the practical knowledge, insight and global mindset to be a great board director.

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