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The M&A Litmus Test: Part 1 of 5

Posted By Alexandra R. Lajoux On August 3, 2010 @ 1:28 pm In Blogs,M&A and Private Equity | No Comments

How effective is your board? M&A can be your litmus test. If you are making a buy/sell/merge decision, the experience will reveal your board’s capabilities in myriad areas, especially these:

1. M&A “IQ”

2. Fiduciary duties

3. Strategy

4. Information flow

5. Good business sense

Today is day one of five of your M&A Litmus Test, so we’ll start by testing your board’s….

M&A IQ

Does your board know why M&A matters? The wise board won’t leave mergers and acquisitions to external advisors – or wait until the last minute to bring them in. The decision to buy or sell a company of significant size is clearly a matter meriting board attention. On the sell side, time may not be on your side.

Directors serving on public company boards understand that any public company, by definition, is vulnerable to a hostile takeover (since any person with enough funding can buy their shares on the open market through a tender offer and gain control).

So far in 2010 there have been nearly 20,000 announced deals worth more than $1 trillion. Some 7 percent of all announced deals worldwide—nearly 1,400 transactions—were unsolicited (hostile) bids.

Directors serving on private company boards need to understand that sometimes M&A is the company’s only exit strategy when the founder wants to retire and there is no next generation of family and/or employees to continue the legacy.

Tomorrow, you’ll be tested on fiduciary duties in the sale of a company. See you in class!

Follow the NACD’s blog [1] for the M&A Litmus Test parts 1-5


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[1] NACD’s blog: http://blog.nacdonline.org/2010/07/the-ma-litmus-test-%e2%80%93-part-1-of-5/

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