Corporate

Governance

Towards a more
prominent role for
the Supervisory
Board

Mergers &
Acquisitions

www.pwc.nl/corporategovernance
 Table of contents

Introduction 3
Success and failure in M&A 5
M&A strategy 8
The acquisition process 11
At PwC, our purpose is to build trust in Divestitures and carve-outs 15
society and solve important problems.
We’re a network of firms in 157 countries The public offer 18
with more than 276,000 people. At PwC
in the Netherlands over 5,400 people Post-deal integration 21
work together. We’re committed to
delivering quality in assurance, tax and Developing M&A capabilities 24
advisory services. Tell us what matters to
you and find out more by visiting us at
www.pwc.nl.

PwC refers to the PwC network and/or

one or more of its member firms, each of
which is a separate legal entity. Please
see www.pwc.com/structure for further
details.

2 PwC
 Introduction

Merger and acquisition activity (mergers, acquisitions, joint ventures,

divestitures) is at an all-time high. M&A volumes are now higher than
during the internet boom of 1999- 2001 and the M&A boom of 2004 – 2007
that was fuelled by cheap credit. Asian M&A activity, particularly in and out
of China, has contributed to this growth, while European M&A is still below
previous peak levels.

The current M&A cycle is driven by the search for growth in the post-crisis
low growth world, exceptionally low interest rates and abundant liquidity.
Economic growth rates around the world are now structurally lower than before
Maarten van de Pol the financial and economic crisis. As a result, organic revenue growth of many
Partner Deals
companies is in the low single digits and M&A has become an important
instrument for growth. M&A is facilitated by exceptionally low costs of financing
and abundant liquidity, which are the result of unorthodox measures central
banks have taken to revive economic growth. In many of the world’s major
economies interest rates are now exceptionally low or, in some countries,
even negative. In addition, many companies are sitting on record amounts of
cash, as they have recovered from the economic and financial crisis. These
cash balances can be either paid out to shareholders or used to revive growth
through capital expenditure, R&D or M&A.

In the M&A market corporate acquirers are competing against private equity
firms and sovereign wealth funds. In the search for yield, institutional investors
are increasing their allocations to alternative investments of which private equity
is a major category. Similar to corporates holding all-time high levels of cash,
private equity firms have record amounts of funds available for investments
(‘dry powder’).

Mergers & Acquisitions Introduction 3

 Corporate
Governance
M&A is an important strategic option that companies can leverage to make
necessary leaps in the competitive marketplace. It can help companies to
Towards a more
obtain a higher market share and a broader customer base, and gain access
to new technology, products and distribution channels. Yet, at the same time,
prominent role for
the Supervisory
Board

April 2019

M&A is very risky and many deals fail, sometimes bringing companies to the
Mergers & brink of failure. Reasons for failure vary and range from opportunistic M&A and
Acquisitions
overpayment to poor integration. For many companies mergers and acquisitions
www.pwc.nl/corporate-governance
are irregular events for which they lack capabilities and processes. This is
compounded by biases in M&A that cloud M&A decision-making, such as deal
fever, tunnel vision and strong incentives to complete a deal.
This book is principally
aimed at Non-executive We are of the opinion that the M&A track record of many Dutch corporates,
directors of a corporate which consists of successes but also of many failures, demonstrates the need
business, in particular for a more prominent role of Supervisory Boards. Supervisory Boards are well
Dutch listed corporates, positioned to take a long-term view of a deal, which can act as a counterbalance
but many areas are to the deal pressure that management may find itself in. The combined
equally relevant for Non- experience of the Non-executive directors, which covers a variety of industries,
executive directors of competitive environments and mergers and acquisitions, are invaluable to help
other organizations. It is management extract more value from M&A and reduce the risks involved.
a practical guide; it does
not cover all the legal or
regulatory aspects of an
M&A process.

4 PwC
Success and failure in M&A

There are myriads of anecdotes of failed M&A deals. ‘Relatedness’ or strategic ‘fit’ appears to be of great
According to academic research, failure rates range relevance to M&A success. Recent comprehensive
from 50% to 80%. To be more precise, these failure research by Strategy&, part of the PwC network, has
rates apply to acquirers. Shareholders of target shown that the degree to which a deal contributes
companies typically receive a large premium on the to an acquirer’s system of capabilities, either by
sale of their shares. And multi-business corporations leveraging the acquirer’s current capability system
that divest non-core activities typically achieve or by enhancing that system with complementary
superior shareholder returns as they reverse the capabilities, greatly enhances the acquirer’s return.
conglomerate discount embedded in their share
prices. This book will address the key attention points for
Supervisory Boards in M&A matters, both relating to
While failed acquisitions understandably catch the the opportunities for value creation and managing
public attention, many acquirers are actually very the substantial risks. We will do so by following the
successful. Success and failure is therefore not sequence of the M&A process: from strategy, to
something beyond the control of acquirers, but can be execution and post-deal integration. We will also pay
managed. For companies considering an acquisition attention to the capabilities and processes a company
it is crucial to have an understanding of the factors needs to successfully execute and implement a
that contribute to the success or failure of a deal. The merger or an acquisition.
table on page 6 and 7 contains some key factors that
according to academic research contribute to the
success and failure of acquisitions.

Post-deal
M&A strategy Deal execution
integration

M&A process / capabilities

Mergers & Acquisitions Success and failure in M&A 5

 Raising the probability
of success
Strategically motivated
deals
Acquisitions of related
businesses
Acquisitions of private
firms
Large related deal

Buyer obtains control

Buy during ‘cold’

M&A markets

Synergies are cost and

capex related
Frequent acquirer

Negotiated deal

6 PwC
Factors that distinguish good acquisitions from
bad ones: evidence from academic research

Raising the probability Explanation

of failure
Opportunistic deals Opportunistic deals rarely have a strategic fit and acquirers are ill prepared to
integrate these deals.
Acquisitions of Acquirers often lack a sufficiently deep understanding of unrelated
unrelated businesses businesses.
Acquisition of listed Acquirers of listed companies have to pay a premium of typically 30% - 40%
firms above the share price. This impedes the financial success of a deal.
Large ‘transformational’ Although eye-catching, ‘transformational’ deals are very complex in many
deal respects.
Merger of equals Mergers of equals raises the probability of infighting and tends to slow down
post-deal decision-making.
Buy during ‘hot’ M&A In ‘cold’ M&A markets, prices are low and the most attractive targets are still
markets up for sale. In ‘hot’ M&A market prices are high while the best targets are no
longer available.
Synergies are revenue Revenue synergies often prove difficult to realise; acquirers have a higher
related degree of control over the realisation of cost and capex synergies.
Infrequent acquirer Frequent acquirers can learn from previous deals and are able to develop
internal M&A capabilities.
Auctioned deal Auctions drive up acquisition prices and allow for less due diligence than
negotiated deals.

Mergers & Acquisitions Success and failure in M&A 7

The M&A strategy M&A strategy Deal execution
Post-deal
integration

M&A process / capabilities

• P rovide details on the M&A budget and on financing

General possibilities for M&A.
Mergers and acquisitions have increasingly become • Contain specifics about potential targets, the way to
an important part of the corporate strategy of many develop a pipeline and a strategy to approach these
companies. How M&A fits into a company’s strategy targets.
and complements organic growth depends very much • Flag potential antitrust issues in the acquisition of
on the industry the company operates in, its market any of these targets.
position and its strategy for value creation. Through • Have the ‘end in mind’, which means the integration
M&A companies can make necessary leaps in the strategy should be clearly linked to the deal
competitive marketplace. M&A can, for instance, help strategy.
companies to take advantage of the benefits of scale • Take into account the resources and management
that results from consolidation in mature markets and time required to execute and integrate deals. This
to gain access to new technology, markets, products should typically set a limit on the amount, size and
and distribution channels. It can also help companies nature of deals. Pursuing small targets may not be
respond to unprecedented disruption in industries worth the management effort required to execute
such as financial services, technology and energy. and integrate these deals. Large deals, particularly
if they are outside the acquirer’s current product
In our opinion, an M&A strategy should: markets, are more risky and consume significant
• Be specific about how M&A complements organic resources and management attention.
growth, how it creates value and how it contributes
to the objectives of the company. M&A is not only about acquisitions, but also about
• Include detailed information on M&A targets and divestitures. Multi-business corporations should
criteria. On which countries and markets should review their business portfolio on a regular basis for
M&A activities be focused? Which market positions divestiture candidates. Divestitures should not only be
are we aiming for? What is the minimum and considered for poorly performing activities, but also
maximum target size? What are the expected when new owners can add more value to a business.
synergies? Divestments free up management time and capital
that can then be reallocated to those divisions or
activities where more value can be created.

8 PwC
Companies have a natural tendency to pursue growth, their stakes are too small for that. Rather, they act
even when growth is not creating value. Typically a lot as catalysts: when their involvement and intentions
of emotion has to be overcome before a divestment become public, other shareholders may join in and
decision can be made. It is therefore crucial that a the Management Board might lose control over the
review of the business portfolio to identify candidates direction their company in going. Ultimately this may
for divestiture is performed in a structured and timely lead to a hostile takeover.
fashion. Preparing for divestitures can take from
several months up to one or even two years. Management should therefore assess whether or
not the company is vulnerable to an approach by
We also advise managements of listed companies to activist investors. Have the share price and operating
review their strategy through the lens of investors and performance been lagging peers? Is the industry going
potential activist investors. An approach by activist through rapid changes? Does the business portfolio
investors typically sends shivers through corporate contain unrelated or non-core assets? Management
board rooms, but boards should be braced for more should consider which relevant issues activists bring
as institutional investors are significantly increasing to the table and address those issues before any
asset allocations to activists. approach. Which issues may activist investors bring
forward with which management would rightfully
Activist investors typically take a small stake in disagree? This can be either because activists have
a company and then privately engage with its only limited insight into the company’s strategy and
management to discuss their proposals to make performance, or because their proposals sacrifice
strategic and operational changes to increase long-term value for short-term gains.
shareholder value. If a company’s reaction is not
satisfactory they may either sell their stakes or go
public with their proposals. These proposals may
include a sale of the company to a bidder, thus
realising an acquisition premium or a restructuring
of the business portfolio, breaking companies apart
and reallocating capital. Activist investors do not
obtain control to force their agenda on a company,

Mergers & Acquisitions The M&A strategy 9

 Role of Supervisory Board  sound financing plan is in place.
A
In our opinion the Supervisory Board should hold The company has sufficient resources and
regular discussions with the Management Board on management time available to execute and digest
the strategy of the company and the role of M&A. deals.
Typically the Supervisory Board attends annual The corporate portfolio is being reviewed on a
strategy days, with the Management Board and regular basis to identify possible candidates for
other functions, such as staff in charge of M&A, divestment.
business development and divisional management.
The M&A strategy will result in a pipeline of M&A
The Supervisory Board should oversee that: targets. The development of the pipeline should
The M&A strategy is clearly embedded in the be discussed in the regular Supervisory Board
corporate strategy and is consistent with long- meetings. The Supervisory Board should verify if
term value creation. targets fit the criteria that have been set.
The M&A strategy is translated in sufficiently
detailed acquisition criteria and targets.
The company applies sound financial return
criteria for M&A that are consistent with long term
value creation.

10 PwC
The acquisition process M&A strategy Deal execution
Post-deal
integration

M&A process / capabilities

General In our opinion the following elements are crucial in the

Growth through acquisitions is inherently more risky acquisition process:
than organic growth. Organic growth allows for • Throughout the acquisition process a company
gradual investments which can be adjusted on the should stick to the criteria set out in its M&A
basis of learning and new information. In contrast an strategy in a disciplined manner.
acquisition is an investment ‘at once’, typically fully • Valuations of the target company are often
paid for upfront, in a company of which the acquirer outsourced to the financial advisers of the
has less knowledge than its own business. Nowhere company. We are of the opinion that a company
is this risk more apparent than in the deal phase. should assume responsibility for the valuation as
Acquisitions are frantic, involving many corporate it knows its own business better than its advisers.
functions, multiple business units and a myriad of Financial forecasts, especially synergies, are prone
advisers. Acquisitions are subject to time pressure, to enthusiasm and over-optimism. Valuations
often compounded by competitive bidding situations, should be fact-based, objective and consistent with
which forces acquirers to make decisions on the industry benchmarks. Throughout the acquisition
basis of limited information. And in the later stages process, the valuation should be updated for the
of the deal ‘tunnel vision’ and ‘deal fever’ are likely due diligence findings and the integration plan that
to set in, creating biases in decision making. This is is prepared in this phase.
compounded by the high stakes involved in M&A and • The due diligence should not only focus on risks,
the potential conflicts of interest. but also on identifying additional sources of value
(upsides). This necessarily requires the involvement
If managed incorrectly, acquisitions can expose a of many participants in a due diligence: both
company to unwarranted risks: it may end up with internal functions and business units as well as
a business it should not own, it may overpay, or it external advisers. The due diligence should also
may not be able to manage and integrate the target provide information for the proper structuring of
company. If financed with too much debt a bad the acquisition and information on areas where the
acquisition can even bring a company to the brink of acquirer should obtain contractual protection in
disaster. the purchase agreement. If synergies between the
acquirer and the target company form an important
value driver, it is important that these synergies are
quantified and also subject to due diligence.

Mergers & Acquisitions The acquisition process 11

 • A detailed integration plan should be prepared,
specifying how the target will be managed and
integrated and how and when the value from the
deal will be captured.
• A sound financing plan, specifying the impact
on the financial solvency and credit rating of the
company. The financing plan should also include
scenario analyses to assess the impact of adverse
developments.
• Management should firmly stay in control of
the deal and the acquisition process. This is a
challenge, especially for infrequent acquirers
that lack experience and typically rely heavily on
outside advisers. The acquisition process should
also include checks and balances to contain deal
fever and conflicts of interest that results in biased
decision-making.

In case the target company is listed, the offer

process has to comply with specific regulations,
which aims to achieve an orderly and transparent
process.

12 PwC
Role of Supervisory Board
In the acquisition phase, the involvement of the  he Management Board submits an acquisition
T
Supervisory Board increases. Supervisory Board proposal to the Supervisory Board, which includes:
meetings become more frequent. To facilitate swift - The deal rationale
decision-making it is advisable that a transaction - A valuation of the target and synergies
committee be created, for instance consisting of - A summary of due diligence reports and due
two members of the Management Board and two diligence findings. The transaction committee
members of the Supervisory Board. The transaction should get the full due diligence reports
committee facilitates accelerated decision-making - A concrete and detailed integration plan
which is crucial in the acquisition phase. The - A sound financing plan
committee is involved in the transaction on a day-
to-day basis and in the preparation of the deal, but In arriving at a decision to approve the deal and a
has no decision-making authority. The decision- mandate for further negotiations, the Supervisory
making and approval remains in the domains of the Board should seek satisfactory answers to the
Management Board and the Supervisory Board, following questions:
respectively. - Why should we make this acquisition?
- Do we have the right resources to integrate the
In our opinion, the following list contains the key target?
attention points for Supervisory Board: - Has the Management Board hired the proper
Targets should only be formally approached by advisers, e.g. for valuation, due diligence and
management after approval by the Supervisory financing? Is the fee structure appropriate?
Board. Supervisory Boards should stay in - Are the financial forecasts and synergies based
control. Lower management levels and country on management assumptions and know-how
managers should not be allowed to pursue of the business rather than on the options of
deals in isolation and without consultation. As a its advisers? Is the valuation based on realistic
general rule, Non-executive directors can give rather than stretched assumptions?
informal introductions, but should themselves not
approach targets.

Mergers & Acquisitions The acquisition process 13

 - H ow much of the synergies do we pay away and The Supervisory Board should also obtain
is the value creation substantial enough to warrant information from managers outside the
the effort and risks of the deal? Management Board, such as the CFO and division
- Are the financing terms acceptable and will the management.
company be exposed to unacceptable risks as a
result of the financing structure?  he Supervisory Board should consider whether
T
- What are the key risk factors of the deal and it can make use of the same advisers as the
how have these been addressed in a satisfactory Management Board or whether it should have
manner? its own advisers. The size of the target, the
- The integration plan should include a clear complexity of the acquisition and the financing of
blueprint for the organisation in the post-deal the deal are important considerations. In case the
phase, actions linked to priorities, and clear Supervisory Board relies on the same advisers as
targets and milestones. The integration plan the Management Board, it should not only have
should also include a clear communication plan. access to their reports, but these advisers should
- Have adverse developments been factored in? also be available to the Supervisory Board for
For instance: what if the integration process takes explanations and clarifications. Public companies
longer than anticipated? Has the potential loss of (naamloze vennootschappen) require approval
key clients and personnel been considered? of the general meeting of shareholders for the
- Have scenarios been prepared to ensure the acquisition of targets that exceed a certain value
company is still viable if the deal turns out poorly threshold (Section 2:107a (1)1/c of the Dutch Civil
in combination with other adverse development Code). If this requirement is met, the Supervisory
like a recession? Board should consider to hire independent advisers
for the valuation and fairness opinion.
 he Supervisory Board should ensure that the
T
decision-making has been done in an unbiased and
objective manner. The Supervisory Board should
inquire about which discussion has taken place
in the Management Board, particularly regarding
opportunities and risks of the acquisition.

14 PwC
Divestitures and carve-outs M&A strategy Deal execution
Post-deal
integration

M&A process / capabilities

General structures. A vendor due diligence helps to maintain

Multi-business corporations should regularly review control over the sales process and the issuing of
their business portfolio and assess if a division should information. It identifies the positive and negative points
be divested. The key criterion should be whether the of the business in an early stage and avoids surprises
business unit is non-core and another owner could add later in the process.
more value to the business.
Candidates for divestment should be identified at The separation process should start with different
an early stage, because the process of separation is buyer categories in mind and define deal packages for
typically complex and time consuming. It is crucial each of them. The consideration of different exit routes
that the separation is completed before the sales allows a dual track process (M&A transaction and IPO),
process starts, so as to avoid hick-ups and unpleasant which creates flexibility and competitive pressure in
surprises in the sales process. Over the years, most the sales process. Typical exit routes to consider are:
corporations have centralised a lot of their support strategic buyers which have local infrastructure, foreign
functions and moved to ERP systems which are strategic buyers, private equity and IPO. The latter
complex to unwind. Divestitures will also leave the two categories typically don’t have an organisational
company with ‘stranded’ overhead costs and it takes infrastructure in place and for these buyers the
time to reduce these costs on a structural basis. divested business should be designed as a stand-
alone company. An integral part of the preparation is
Proper preparation is essential for a company in order the design of transitional services that the vendor may
to remain in control of the sales process. A key risk need to offer to potential buyers, for instance in IT,
in divestment processes is that the Management accounting and purchasing, in order to facilitate the
Board lacks detailed information about the division sale and integration into the buyer.
or business that is put up for divestment. In such a
situation, a purchaser may at some point seize the Another important element is the communication
initiative in the transaction process. Consequently, of the separation and the decision about which
value is eroded in the sales process. These risks employees will go with the divestiture and which
can be mitigated by commissioning vendor due will stay. The natural tendency once the plan for a
diligence before the launch of the sales process and divestiture has been communicated, is to give less
by implementing the right management incentive attention to the divested business, while instead

Mergers & Acquisitions Divestitures and carve-outs 15

it should get more attention in order to maximise Role of Supervisory Board
value. There will also be a period of uncertainty for In many respects, the sales process mirrors the frantic
employees that may either go with the divested nature of the acquisition process, although there are
business or stay with the selling company. In either some marked differences. The acquisition process
case, it is important that employees are incentivised is focussed on overcoming information asymmetries
to stay so that the value of the divestment is and obtain a detailed understanding of how the target
maximised. will create value after the deal has been closed. In
contrast, the divestment process is more focussed
Corporate management needs to pay special on optimisation of the disentanglement and the sales
attention to the risk that the loyalty of divisional process. Also in the case of divestments we advise
management shifts to its new prospective owner. the formation of a transaction committee and we
This will especially be the case in a sale to private suggest that the Supervisory Board applies similar
equity. The divisional management is often crucial considerations to decide whether or not to hire its own
for the private equity firm to meet the objectives independent advisers.
of the acquisition and this is reflected in the
management incentive structure. Key managers In our opinion, the key attention points of the
of the business will be asked to invest in the new Supervisory Board are:
company. This, of course, puts the divisional Approval of the decision to divest a business unit or
management in a delicate position. Corporate division, ensure it is in line with corporate strategy,
management should pro-actively manage this and based on a separation analysis and vendor due
conflict of interest. For example, they should diligence.
approve the business plan that is submitted to the Oversee that the company properly addresses the
private equity buyer and make sure to be in control high degree of uncertainty to which employees are
of the process of information exchange with the exposed during the separation and sales process
buyer. Corporate management should also lead by properly incentivising staff that may either go
the negotiations on price and the future position of with the divested business or stay with the selling
divisional management. company.

16 PwC
 nsure that the corporate management has
E
established procedures to deal with the shift of the
division’s management allegiance to the buyer’s
side. This is likely to be the case in any deal, but
particularly in a sale to private equity.
Approval of the start of the sales process, possibly
following multiple tracks and buyer categories.
Relevant criteria for each alternative to consider
are: deal value, stranded overhead costs, carve-
out complexities, required transitory agreements,
deal certainty, competitive pressure and flexibility
if market conditions change.
The Supervisory Board should ensure that in the
sales process the interests of the stakeholders
involved in the company are properly weighed.
Besides price, also non-financial criteria need to
be considered, for example the reputation of the
buyer, the position of the divested company in
the organisational structure of the buyer, and the
future location of the divisional head office and
R&D centres. Another important aspect is the
capital structure of the divestment in the post-deal
phase. The latter is of particular relevance in case
of a sale to a private equity party. The Supervisory
Board should ensure itself, preferably with the Further the Supervisory Board has the responsibility
help of external advisers, that the degree of to make sure that non-financial criteria do not
leverage the private equity buyer is planning to put remain on the level of good intentions but get real
in the divestment is acceptable. contractual teeth.

Mergers & Acquisitions Divestitures and carve-outs 17

 The public offer M&A strategy Deal execution
Post-deal
integration

M&A process / capabilities

General
An actual or proposed public offer for the shares of
a listed company marks the beginning of a stressful
period for the target company. A successful public
offer means the end of a company’s independence,
an outcome which in most cases is not part of the
deliberate strategy of a company. The management
of a target company involved in the negotiations of a
friendly public offer runs a large risk of losing control
in the process and become a plaything of anyone
with an interest in the outcome of the offer. This can
be caused by, for instance, a leakage of information
and by competing bidders. Management loses
more control if the offer process turns hostile and
management is side-lined in the deal.

In the case of a public offer, the Management

Board and the Supervisory Board are responsible
for a careful weighing of the interests of all the
stakeholders involved in the company. This
includes the analysis of alternative options, such
as a continuation of a stand-alone future, possibly
combined with a change in strategy, and the
consideration of the pros and cons of alternative
buyer categories and different buyers from the
perspective of the different shareholders.

18 PwC
Role of Supervisory Board Establishing a special committee as mentioned in the
The Supervisory Board should be closely involved Proposal is a codification of common practice in public
because of the pressures inherent in the public offer offers. The main advantage of a committee, according
process. Another reason for close involvement is that to the Proposal, is the acceleration of decision-making,
the position of the members of the Management Board as the Management Board and the Supervisory Board
is at stake, which may prevent them from making an are working together more closely. However this should
objective assessment of the offer and any alternatives. not reduce the responsibilities of the individual members
This is especially relevant in the case of a public offer of the Management Board and the Supervisory Board
by private equity which typically includes the condition under the articles of association. According to the
that management stays on and co-invests in the Proposal, the chairman of the Supervisory Board
company. should chair the special committee. The Proposal
also addresses the situation that a member of the
The Proposal for revision of the Dutch Corporate Supervisory Board or special committee may not be
Governance Code1 stresses the importance of close independent, for instance when having a shareholding in
involvement of the Supervisory Board by proposing a the company. According to the Proposal, the chairman
special committee (transaction committee) consisting should carefully weigh the involvement of dependent
of members of the Management Board and the Non-executive directors in the decision making
Supervisory Board. This committee should be installed concerning the offer.
in the event of a takeover bid or a proposed takeover
bid for the shares of a company and in the event of Key attention points for the Supervisory Board
a public offer for a business unit or a participating are the following:
interest, where the value of the bid exceeds the The Supervisory Board should make sure it remains
threshold referred to in Section 2:107 a (1) (c) of the in control of the process and the company does
Dutch Civil Code. not let the company become a plaything. For this
reason it must ensure that procedures against
information leakage and insider trading are in place.
In addition to a potential lack of independence
of Non-executive directors, the Supervisory
Board should also consider the independence
1
issues of members of the Management Board
Dated 11 February 2016

Mergers & Acquisitions The public offer 19

 and the implications for their involvement in the It is the role of the Supervisory Board to challenge
decision-making in the public offer process. Lack this. The Supervisory Board should oversee that the
of independence mainly relates to the position Management Board does not reject alternative offers
the members of the Management Board may be without its approval.
offered by the acquirer and is especially a factor
of importance in a bid by a private equity party. The Proposal for revision of the Dutch Governance
In these circumstances it is important that the Codes stipulates that if the Management Board
Supervisory Board is informed about and approves receives a request from
the information exchange between the company a competing bidder to inspect the records of
and the private equity bidder. It is important that the the company, the Management Board should discuss
Supervisory Board approves the business plan that this request with the Supervisory Board without delay.
is submitted to the bidder. Non-financial criteria, such as head office location,
The Supervisory Board should oversee that all anti-break-up clauses, the maximum amount of
relevant strategic options are considered, including post-deal leverage, and their trade-off with the
alternative buyers, divestment of non-core offer price should all be carefully considered as
businesses and a continuation of the independence part of the weighing of interests of the different
of the company if the potential for value creation is stakeholders of the company and should be
superior to the offer. The Management Board and included in the merger protocol.
its advisers may be inclined to overly focus on the The Supervisory Board should have its own
offer at hand. independent financial advisers for a review of
alternative options, assessment of the offer at
hand, including a valuation and fairness opinion.

20 PwC
Post-deal integration M&A strategy Deal execution
Post-deal
integration

M&A process / capabilities

General deal rationale. Integration failure is often related to

While the integration phase of a deal seldom grabs the complex and demanding nature of post-deal
headlines, the successful integration of a target is the integration. Lack of preparation, the absence of a
only way to evaluate the outcome of a deal. However detailed integration plan, insufficient staff and funds
many integrations are not successful. The seeds of dedicated to integration and too little attention from
failure may already have been sown in the strategy senior executives are some major reasons for failure.
phase: a good integration cannot make up for a poor Cultural incompatability is another major reason.

Mergers & Acquisitions Post-deal integration 21

Poor deal integration may have disastrous results for a Overcoming cultural incompatibilities is also crucial.
company. It may negatively impact the base business Yet the difficulty with ‘culture’ is that it is hard to define,
as clients and important staff may leave and weaken since it means different thing to different people. It is
the competitive position of the company. Integration important to ‘translate’ culture in practical terms that can
costs may exceed budget and the speed of integration, be managed during integration.
crucial for successful integration may miss targets. Also
synergies may be realised much later, if at all, and poor Post-deal integration should not only focus on
integration of reporting and control systems can lead to managing risks. It should also allow for the discovery
a lack of control. and capture of new sources of deal value that were not
visible prior to the closing of the deal. In this respect,
Managing the risks in post-deal integration requires the distinction between deals focused on scale and
detailed planning, sufficient resources dedicated to the cost synergies (‘related’ deals) and those focused on
integration process, and clear milestones. Procedures extending scope and the acquisition of new capabilities
need to be in place to protect the base line and business and technology (‘unrelated’ deals) is relevant.
continuity after day one and ensure the timely realisation Integration of ‘related’ deals can be better planned and
of priority cost savings and operating synergies. executed compared to ‘unrelated’ deals, which are
Communication to all stakeholders (employees, more transformational in nature. Unrelated deals are
customers and suppliers) is crucial and should cover the more risky, because it may fundamentally change the
new organisational model going forward, the integration way a company does business. Still, unrelated deals
plan, milestones, and new leadership positions. can also create a huge amount of value.
Communication is important to reduce uncertainty and
contribute to the ongoing commitment of stakeholders.

22 PwC
Role of Supervisory Board  he integration plan contains the right balance
T
The Supervisory Board should oversee that the between speed and process on the one hand,
integration is progressing according to plan, based and on the other hand the flexibility to capture
on predefined milestones and targets and that additional benefits that have become visible after
proper actions are taken when targets are not met. In closing.
particular, the Supervisory Board should Reporting & control systems are quickly
oversee that: implemented.
The integration plan, which has been prepared Action is undertaken when there are indications
in the deal phase, is being updated in a timely that the core of the business is negatively
fashion now that the company has full access to affected, e.g. loss of key customers and staff.
information of the target and to its management. Progress of the integration process is tracked,
based on predefined targets for synergies and
financial and non-financial metrics for each
milestone.

Mergers & Acquisitions Post-deal integration 23

Developing M&A capabilities M&A strategy Deal execution
Post-deal
integration

M&A process / capabilities

General • T he organisation of the deal phase: this requires

Frequent acquirers on average create more value the involvement of numerous business units and
from acquisitions than infrequent acquirers because internal and external advisers. It is crucial that
they are better able to avoid pitfalls and capture more companies organise the deal phase in such
value from deals than infrequent acquirers. Companies a way that:
can learn how to become successful in mergers and - The company stays in control of the deal instead
acquisitions and turn their M&A capabilities into a of its advisers.
competitive advantage. - Checks and balances are in place to reduce
tunnel vision and biased decision-making.
Developing M&A capabilities requires the - Deals can be executed at high speed if deal
development of skills, organisational structures - i.e. dynamics so require.
the departments and functions involved - roles, • Procedures and templates, for instance for
processes, procedures and templates throughout all integration and divestiture processes. These
the phases of a transaction, coupled with structures procedures and templates specify what needs to
to institutionalise learning from prior transactions. This be done, which organizational functions should
includes, among other things, the following topics: be involved, and how information will be shared at
• How M&A is organised: the size and composition every stage of the integration or divestiture process.
of the M&A team, the way it cooperates with the They can be used to serve as a central repository of
business development and strategy departments information that can help all team members.
and with the business units. Multi-business • Formal procedures exist for learning from M&A
corporations need to decide to what extent M&A experience. A ‘post mortem’ should be made of
capabilities need to be decentralised. each deal with implications for the M&A strategy,
• The way relationships are built with potential targets the deal process and the integration/divestment
in order to reduce reliance on the introduction of process.
targets by advisers and reduce competition with
other bidders.

24 PwC
Role of Supervisory Board
The Supervisory Board has the responsibility to
oversee that a company has the capability to execute
and integrate deals. For less frequent acquirers it
may not be efficient to develop all these capabilities
in-house and such companies need to rely on
external advisers.

The Supervisory Board should oversee that:

The company has the M&A capabilities to deliver
on its M&A strategy: the right resources, skills,
organisational structure and procedures and
methodology;
Learning from M&A experience is institutionalised,
and the Supervisory Board should receive ‘post
mortem’ assessments from prior deals.

Mergers & Acquisitions Developing M&A capabilities 25

 Waarde toevoegen in tijden van verandering,
een digitaal kompas voor auditcommissies

Governance is sterk in beweging, continue verandering lijkt soms Waarde toevoegen in

tijden van verandering
de enige constante in organisaties. Dit vraagt niet alleen om een Een digitaal kompas voor auditcommissies

andere aansturing maar ook om een andere houding van de raad

van commissarissen. De publicatie ‘Waarde toevoegen in tijden
van verandering’ fungeert als een digitaal kompas dat voorzitters
en leden van auditcommissies richting geeft om waarde toe te 1
December 2019 www.pwc.nl

voegen in deze roerige tijden.

26 PwC
Commissarissen-toolbox Corporate
Governance
Corporate
Governance

Deze publicatie is onderdeel van de commissarissen­

Evalueren vraagt Een robuuste
om een duidelijke dialoog met het
scope bestuur

Juni 2019 Juni 2019

toolbox. Deze toolbox is door PwC ontwikkeld voor

commissarissen en toezichthouders en bestaat uit De Evaluatie Grip op cultuur
en gedrag
verschillende pocketboekjes waarin wordt ingezoomd
op relevante corporate governance-onderwerpen. Naast www.pwc.nl/corporate-governance www.pwc.nl/corporate-governance

theoretische achtergrond en trends bieden de boekjes

vooral praktische aanwijzingen voor uw toezichtrol. Corporate
Governance
Corporate
Governance

Hier kunt u de boekjes van uw interesse downloaden. Towards a more

prominent role for
the Supervisory
Board
Goed toezicht
betekent rekening
houden met de
context

June 2019 Juni 2019

Mergers & De commissaris in

Acquisitions de publieke sector

www.pwc.nl/corporate-governance www.pwc.nl/corporate-governance

Corporate
Governance

Waarom is
een goed
beloningsbeleid
zo complex?

Juni 2019

Remuneratie

www.pwc.nl/corporate-governance

Mergers & Acquisitions Supervisory Board toolbox 27

 Contact

Maarten van de Pol

Partner Deals
T: +31 (0)88 792 72 96
E: maarten.van.de.pol@pwc.com

© 2020 PricewaterhouseCoopers B.V. (KvK 34180289). All rights reserved. PwC refers to the PwC network and/or one or
more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.