Oversight of major transactions

January 2016

On 23–24 November 2015, members of the European Audit Committee Leadership Network (EACLN) convened in Barcelona for their 24th stand-alone meeting. In one session, members discussed board oversight of major transactions, specifically mergers and acquisitions (M&A). 

EACLN members touched on three topics: 

  • Setting M&A strategy in the current economic environment
    Companies are turning to acquisitions for growth, particularly in consolidating markets, as organic growth remains weak.  The impact of the digital transformation is also driving acquisitions for technology or innovation.  From a market perspective, European companies that have held onto their cash through the economic downturn are now under pressure to spend it.  Companies are also examining their existing portfolio and shedding businesses that no longer fit into their overall strategy.

  • Defining the board and audit committee’s roles during due diligence
    While emphasizing that the board plays a more prominent role setting overall strategy and the audit committee plays a more central role in post-acquisition oversight, members highlighted a number of important board activities during due diligence such as testing management assumptions, assessing cultural fit, defining leadership and ensuring key talent is retained.  Lastly, members offered differing opinions on what role the audit committee should play during the due diligence phase, with some saying the audit committee has little to no role and others saying the audit committee should play a central role as the financial experts on the board.

  • Overseeing integration and monitoring promised value
    Members were in agreement that the audit committee’s main duties in a transaction come after the deal, overseeing the integration of an acquisition and then monitoring the ongoing value of the purchase.  Among the activities highlighted were defining which metrics should be used to monitor the value of a deal.