Tools the board can use to prevent an M&A synergy trap

Abstract

Purpose

Negative market reactions to a deal are often driven by a gap between what management believes and what investors perceive, so boards need useful tools to stress test deal economics, the messages CEOs give the market and the level of preparation required to immediately begin delivering on market expectations.

Design/methodology/approach

Four simple analytical tools and a set of questions can help boards drive more informed discussions about potential M&A deals.

Findings

Before committing to a major deal, both parties will need to assess the effect on each company’s shareholder value should the synergy expectations embedded in the premium fail to materialize.

Practical/implications

Empowered Post Merger Integration teams must be created with clear roles, responsibilities and reporting relationships to make effectual recommendations for top management to ratify.

Originality/value

Before approving a deal and recommending it to shareholders, directors should ensure that senior management offers a clear business case and has an operating model’and a plan’ in place. Four simple analytical tools and a set of questions can help boards drive more informed discussions about potential M&A deals.

Citation

Sirower, M.L. and Weirens, J.M. (2022), "Tools the board can use to prevent an M&A synergy trap", Strategy & Leadership, Vol. 50 No. 2, pp. 27-33. https://doi.org/10.1108/SL-01-2022-0010