Managing risk in the M&A box Broaden your approach or keep it contained? Point Counterpoint Go broad and deep “Manage M&A risk using a structured approach with broad involvement across the entire enterprise.” Broad and deep enables better informed decisions. When more people are empowered to monitor risk, it can reduce the likelihood of issues slipping through the cracks — and you can more effectively assess the value of a deal. M&A deals can happen fast. Hold out for fully informed decisions and opportunities may be lost. This is how you work to avoid surprises. If you don’t sweat the details until later, you’re less likely to make the deal pay off. It’s impossible to anticipate every problem, so why try? Better to focus on responding to problems quickly. If your whole organization knows what you’re looking for in terms of M&A risk, you’re more likely to uncover more issues. Executive leadership, the deal teams and board should manage M&A risk. The fewer people involved the better. Broader involvement helps create a seamless transition from the deal phase to execution, which is where many acquisitions fall down. Business unit and functional leaders should focus on their day-to-day operations and not get distracted by M&A until a deal is fully integrated/divested. 1 “Solving the merger mystery: Maximizing the payoff of mergers & acquisitions,” Deloitte, February 2000. As used in this document, “Deloitte” means Deloitte Consulting LLP, Deloitte & Touche LLP, and Deloitte Financial Advisory Services LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Deloitte Debates Mergers and acquisitions can be risky. A Deloitte study shows that less than half of M&A transactions deliver the value that investors and analyst expected.1 That’s why it’s important to make informed decisions about how to manage M&A risk. Some companies are choosing an integrated approach that gets everyone from the board to business unit and functional leaders involved in identifying and managing the risks associated with M&A. Others limit the responsibility for managing these risks to a specialized deal group that owns and drives the process. Which approach works better? Deloitte Debate 2 Our take René Hoffman, Principal, Deloitte & Touche LLP, and Mark Sirower, Principal, Deloitte Consulting LLP Companies can benefit from planting risk intelligence deep inside their organizations — especially when it comes to M&A. That’s because M&A brings everything into play, a microcosm of broader operations. All the moving parts matter, but when things start heating up it can be easy to lose sight of them. In our experience, the more eyes and ears on the job, the better. Using a risk-intelligent approach to M&A helps companies work toward some of the following benefits: • Visibility to better deals. Instead of swinging at whatever shows up in the pipeline, more leaders can be actively involved in ferreting out deals that make sense. • Deals that fit the business better. Ask your board to consider a broad definition of M&A risk within a consistent risk framework. • More confidence in your valuation estimates of target companies. In addition, understanding the issues you’re likely to face once a deal is done (including side effects such as market cannibalization) can help you make more informed determinations of what the acquisition or divestiture is worth. • Due diligence that is more comprehensive. A broad and deep approach that takes a holistic view of an organization’s overall operational and governance risk framework and potential impacts. It doesn’t just focus on financial risks and validating numbers. • Better integration. Business units and functions can better understand integration issues and assumptions so they can hit the ground running. Also, they may feel more personally invested and therefore more responsible for delivering expected benefits. • Fewer surprises. You have a better chanc