June 2001

Mergers, Acquisitions, Disposals

Just how much diligence is due?

Due diligence is a broad term, very often used to refer only to the legal aspects, provision of finance and audit procedures associated with M&A. However, a very significant aspect of the process will be the buyer’s own assessment of the target business as a free standing operation and separately how it might be integrated into its other operations.  That assessment importantly relates to the management and the people generally who are employed by the target company and in identifying skills that are missing and will need to be in the equation for success post-acquisition. Use of interim management to provide the absent resources in these situations is highly valuable, especially if overseas units are involved.

Mergers and Acquisitions: Caveat Emptor! 

They’re not always as friendly as this:

The work involved in assessing the operational strengths and weaknesses of a company is a short term intensive task and an additional work burden on a probably already overstretched core management.

If the acquisition is abroad, it will require the interim executive to have fluency in a foreign language and be familiar with the business ways of the country concerned.

The interim manager gives undivided attention to the task and perfects the knowledge needed by a Company’s Board to make a sound investment choice.

How?  Using an interim executive, pre-acquisition, will yield one or more of these:

  • Assessment of manufacturing efficiency, quality control and potential improvement areas.
  • Analysis of policy and competence of management in their asset control and the strengths and weaknesses of the incumbent management team.
  • Assessment of marketing and sales organisation, performance and potential.
  • Appraisal of financial management, costing systems and policies, budgetary controls and treasury function.
  • Efficiency improvement requirements for all aspects of the supply chain - materials management, procurement, operations and logistics.
  • Harmonisation implications for personnel and company systems, post acquisition.
    •

And all this work can run simultaneously to the due diligence undertaken by the traditional outside advisers with the interim manager providing an objective and experienced input as a contribution to their work and conclusions.

Increasingly, venture capital companies use an interim manager in the assessment of their investment in target companies. Frequently this is the case where a foreign investment is involved and where linguistic ability and knowledge of the country and culture are required.

Use of an interim manager after acquisition is now quite common. Early identification of the management needs immediately following the trauma of take-over - and the rapid deployment possible - mean resource gaps are covered almost from Day 1. Difficulties not possible to anticipate earlier in the acquisition process, can be readily tackled by an interim manager thus releasing senior executives and their immediate team members to get on with the strategy, confident that they will not be blown-off course.

Company disposals are another matter but nevertheless delicate and need equally careful management. Experience shows that the line executive, under instruction to shut down the operation, is understandably little motivated for a variety of reasons.

For the interim manager, this is just another assignment to be dealt with efficiently, objectively and economically in the shortest possible timescale, with no split loyalty between employer and employee. His innate independence helps him achieve this.

Call us now, if anything you have read here relates to your current thinking or possible needs

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