Market Meltdown Spurs Changes to M&A Process

The financial crisis is prompting organizations to close their M&A deals twice as quickly as they did in the past.

While the global downturn has led to a substantial decline in the volume of M&A transactions, it has also encouraged a hunt for opportunistic acquisitions that are being completed much more rapidly than usual. According to Towers Perrin research, the average duration of M&A deals in 2007 was 142 days; in 2008, it plunged to 80 days.

These accelerated deals are occurring in both the financial and nonfinancial sectors.

Risk and opportunity in M&A transactions 

Although some M&A deals continue to move forward at pre-crisis speed, many are now being made with accelerated timing to meet both market and commercial necessity, and companies find themselves setting different priorities. As a consequence:

• Some crucial elements, such as practical execution planning and leadership retention, are pushed through at speeds considered unthinkable even a year or so ago.
• Due diligence has become an after-the-fact process, essentially to determine what has been acquired.
• Other deal components, such as cultural integration and reward analysis, are also being held off until after the deal is finalized.

Essentially, what has happened is that safeguarding a company's future via sale or restructuring has become a lightning priority in the face of deteriorating market conditions. In some cases, companies with deep pockets are willing to forgo traditional M&A process in their eagerness to snap up bargains.

Critical issues still need addressing in any successful start

However, even an expedited M&A deal can encounter challenges in terms of talent needs, executive succession, employee engagement, hidden costs, risk management and other critical needs. How can you ensure a fairly smooth M&A transition process that protects value and minimizes risk from day one? Here are three priorities that are essential to keep in mind:

• Retain top talent. The most talented people want to work for top companies. Determine high performers; pay them what they're worth, and determine additional incentives. You'll be ahead of competitors that are quick to clean house and inadvertently lose key employees
• Be transparent. Communicate your vision for the company and what changes are on the horizon. The sooner employees know the strategy, the sooner they can become a driving force behind it.
• Manage stakeholder expectations. The hastiness of current M&A deals has led to even more uncertainty and questions upon change in control. Make sure stakeholders understand that the organization will need time to solidify integration details after the deal closes.

A permanent change on the M&A landscape?

Some industry experts predict that accelerated M&A transactions, initially considered an anomaly that would fade as economies and organizations rebound, may be a legacy of the financial crisis. However, these are not normal times, and it is clear that the financial crisis is prompting many companies to put together deals under stress. In doing so, they may be forgoing traditional due diligence processes designed to address critical priorities and minimize risk.

When involved in a transaction, each organization needs to assess its own situation and decide whether it is in a position to follow the usual due diligence processes or take on the additional risk and hidden costs that can come with a speedy deal.