The role of a non-exec director during an M&A process
The role of a non-exec can vary significantly from business to business, depending on its scale, stage, and strategy. However, a good non-exec will always contribute objectivity, challenge and support to the executive management team and will help to fill capability and knowledge gaps as the board develops and implements their plans.
Often the executive team will select a non-executive director based on a perception of their specific challenges and will look for a candidate who has had prior success in that area. For example, prior experience of implementing a successful US sales strategy, transitioning a business model (e.g., software to SaaS) or a buy and build acquisitions plan might be extremely valuable to a CEO without that direct experience themselves.
The same objectivity, challenge, support and areas of specific expertise, are equally valid as a business contemplates and then enters a transaction process. There are three key areas where non-execs can have a particularly valuable role to play; these are Preparation, People and Perspective.
An experienced non exec can play a key role in helping a board to prepare for a transactional process. Helping the executives consider all aspects of a potential transaction with a view to clearly defining their desired outcomes, to set a realistic plan and timeframe and to allocate roles and responsibilities can avoid considerable wasted time and distraction later.
A non-exec with their own direct experience of a disposal or fund-raising process will understand the steps in an M&A process and will support their Board not to under-estimate the investment of time necessary to execute a successful deal or the very detailed nature of the information required for due diligence and disclosure processes. If the transaction is an acquisition, they will help the Board to understand the highly iterative nature of the negotiation process.
A strong non-exec will also understand the nature of the advice and project management support which is required from external advisers. They will be able to help the board define the criteria by which prospective advisers should be assessed, help set expectations around scope and fees, and can lead the appointment process. With a plethora of advisory firms to select from in the M&A arena, the non-exec will be able to help determine whether geographical reach, sector knowledge, resource capacity, a hands-on approach, experience, or fees are most important to the case in question and to identify appropriate potential advisers to present to the Board.
A non-exec ought to have a very clear and deep understanding of the dynamics between individuals on the board and their relationship with the shareholders (if not the same group) and should be able to help allocate roles and responsibilities in a transaction in a way which optimises strengths and preserves trust.
A transactional process, particularly in a disposal or investment-raising process can be an intense, emotional and time-consuming experience. Workloads between board members can be unequal and those not immediately involved in the process can feel excluded or marginalised. The experienced non-exec will ensure that all parties are kept informed at every step of the process and that key decisions are properly and fully socialised. They can provide a useful “back channel” for individuals to air concerns or even grievances and for clarifications or amplifications to be sought.
The Non-Exec also has a part to play in building and developing a relationship with “the other side”. Without the burden of the day-job and with an objective overview of the process, they can help orient the social-side of the deal; whether it is hosting or chairing “getting to know you” meetings, attending dinners with would-be private equity investors to make sure none of the executives put their foot in it after a glass too many of wine, and reading the body language of buyers, vendors and investors while the executives are presenting or debating.
If the relationship with the appointed advisers should come under pressure at any point, the non-exec should be able to help clarify the issue and objectively address it with the individual or individuals concerned. Perhaps the Board hadn’t fully appreciated how long due diligence enquiries can last, perhaps the CEO is difficult to pin down to delivering information or meeting dates, perhaps the adviser is perceived not to be following the process laid out in their pitch, perhaps it has been too long since the shareholders have seen the lead adviser and are concerned about his/her focus. Here the skilled non-exec should be able to weigh up the legitimacy of the concern and address it pragmatically to help unstick the process.
Of course, many times the non-exec is also a principal in the deal, albeit often a relatively minor shareholder. Sometimes they might find that they face a potential conflict in terms of how an issue between the parties to a transaction is resolved, or where their own outcome is directly impacted by a pragmatic fix to the outcomes of others. This is often in the sphere of tax structuring. Normally a non-exec will not transition from the old regime into the new and it is sometimes challenging therefore to stand back from self-interest and support the wider team and the wider deal. However an experienced non-exec will be able to do that and to put the wider interest before their own in the interests of fulfilling their role with integrity.
Finally, an experienced and worthy non exec will bring perspective to the deal process.
They can contextualise the multiple micro negotiations that come later in the deal process so that the executive team and/or shareholders can see them in context of the overall transaction and not allow them to undermine or damage relationships with the other side.
Alongside the advisory team, a non-exec will sit with the board and bring perspective and objectivity at a time when the principal team will often be weary, mistrustful and deal-fatigued. Providing encouragement, support, context and perspective the strong non-exec can help the advisory team to put individual concerns to rest where they are unfounded and to shape them effectively where they are not.
Finally, the non exec should ensure, throughout the process, that in addition to the transaction itself, the Board continues to focus on its core responsibilities to the company, the shareholders and other stakeholders. They will be able to redirect focus when it is lost, identify if conflicts arise between the individual interest and the corporate one and create space for individuals if they need to concentrate on trading, compliance or one-off issues for a period.
Though many transactions can and do complete without the support and input of a non executive board director; there are many ways in which a strong non-exec can add value.
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