Attaining Information Nirvana: The Current Dynamic M&A Market Poses Some Specific Challenges for Ongoing Good Governance

Article excerpt

NEW Zealand's mergers and acquisitions scene has recently been dominated by a number of high value transactions often completed in short timeframes involving offshore private equity buyers. Such sales have generally been conducted through a competitive bid, or auction process to drive high levels of interest for a quick and successful sale at the best possible price. As market conditions remain unchanged, it seems likely this activity will continue at similar levels for some time yet.

During a sales process the role of the board of directors is critical. At these times directors use the tools that are available to them to ensure good governance is maintained, and the best outcome for stakeholders is achieved. In this context, key outcomes for stakeholders include:

* A correct decision to sell at the "right time and for the right reasons";

* A successful sale at the best price;

* Minimal residual risk;

* A quick and full return to stakeholders.

Good decisions require an informed understanding of the opportunities and risks facing the business before going to the market, and the ability to be proactive (not reactive) in setting the sales environment. It also requires the ability to juggle the competing interests of the various interested parties involved in the business. Whilst a well-run auction process can maximise price, it also places considerable strain on management and the board to commit to an often public, time consuming and expensive process. Once committed to, it becomes vital the right result is achieved as, whilst failure to conclude a deal is a bad indicator to the market, a "poor deal" is even worse.

So, how does a board achieve this "information nirvana"? Increasingly, the market is seeing the use of due diligence reports prepared, and paid for, at the request of vendors, with the intention of such reports being made available to potential bidders. These reports are seen to encourage a robust sales process by ensuring a high level of bidder participation, shortening of the sales process and decreased management effort. From a governance perspective, such reports provide the board with an independent source of information on which to make its decisions, both before and during a sales process. In particular, vendor due diligence will:

* Identify potential road-blocks to the sale occurring, or which may impact price. …