Insights from leading directors at The M&A Conference 2023
The M&A Conference 2023 was held earlier this month. It was hosted by Allens, Herbert Smith Freehills and King & Wood Mallesons, in partnership with the Australian Financial Review and in support of the Black Dog Institute. The live days in each of Sydney and Melbourne featured panels of leading directors who shared their perspectives on the board’s role in a takeover. Some of the high-level issues coming out of the panels, and the discussion in the room, are set out below.
Have a view on value
The theme of “being prepared” found its way into each of the discussions. Foremost amongst the preparation work that a board has to do is to have a view on the value of the company. Perhaps unsurprisingly, the point was made that absent a view on value, it is impossible for a board to respond to a change of control approach.
However, not all boards are prepared. In our 2021 survey of ASX-listed directors, A View From the Top (click here), more directors were of the view that the companies on whose boards they sat were not prepared for a takeover approach, as opposed to being prepared:
Clearly, the mad scramble on a weekend when the view on value is some time away is to be avoided. Yet it remains the case that not all boards are prepared.
The role of shareholders in takeovers was the subject of healthy discussion. Interestingly, each of the directors’ sessions in Sydney and Melbourne was preceded by a session focusing on the shareholders view of takeovers, with major institutional shareholders represented.
At one of those sessions, it was suggested by a leading shareholder that boards should immediately disclose every non-binding indicative offer received for the whole of a company. It may surprise no one that this view was not shared by the directors. The consensus was that this was too simplistic a view and that for a range of reasons, it may be in the company’s interest not to disclose an approach. Some approaches are highly conditional and disclosure is not a zero-sum game: it can have a significant impact on a company and its stakeholders. It may also not be the best way to extract the highest price from a bidder.
The challenges of catering to the often vastly different desires of shareholders were also canvassed. Some shareholders will be long-term supporters of the company who have a particular long-term view of value. Others may be recent additions to the registers, looking to make a short-term gain. The directors acknowledged that while all views are legitimate and need to be considered, a board needed to go about its work in determining the value on offer under a bid and how that measured up against the board’s view of the company’s value.
Is it just value?
The panels also emphasised that while value is of course crucial, other features of offers were also important such as the credibility of the bidder, questions around “executability” and other terms and conditions.
This is also consistent with our 2021 ASX-listed director survey. In that survey, 60% of ASX-listed directors surveyed felt that the terms and conditions of an offer were equally as important as the value on the table:
If anything, with more regulatory challenges looming over deals in recent years, one would expect that number to be at least the same or higher today, and not lower.
Private equity bidders
The particular case of private equity bidders in takeovers was also discussed. While the issues above were all of relevance, some other ones raised in this context include:
- Will the approach turn into a deal?
- Do we have in place appropriate governance arrangements for management?
- How well does the private equity house know the company and what diligence will be required?
The increasing role of private equity in public M&A deals makes the answers to these questions all the more important. But they are just questions and they can be answered. It was also noted that there can be points on the other side of the ledger – for example a sponsor entering an industry for the first time may not have as many issues getting diligence access as an established rival corporate.
The various panellists couldn’t be allowed to escape their duties without a final question around what was their top tip for deal advisers?
The answer, while expressed in various way, seemed to be the same: it’s all about long-term trusted relationships.
Three key themes emerged from the panel discussions on the role of the board in takeovers at The M&A Conference 2023:
- The view on value: The directors on the panels pointed to the need for a board to have an ongoing view of value, with this coming into sharp focus once an offer for the company lands. The views of shareholders are clearly important, but noting that a shareholder base is often diverse in its commercial interests with wide-ranging views on offers.
- It’s not just value: Critical as value is, other conditions and features of an offer are also very important. Boards put a lot of importance on this and that importance is unlikely to diminish any time soon given the regulatory approval headwinds over a number of deals and sectors.
- Issue to consider for private equity: Sponsors have become established and credible players in public M&A. Boards are likely to pose some additional questions to private equity bidders, including around the level of understanding of the company and its industry and what diligence will be required, compared to a corporate bidder already in the industry. But they are questions that can be answered.