Task-related exceptions in mergers and acquisitions: resolution patterns

Exceptions in the M&A process

Exceptions are present if

• Buyer or target or stakeholders change their expected behavior when transacting, transactions go wrong or do not generate the expected outcome

• Significant goals and objectives of tasks in the M&A process cannot be met or

• External effects hit (e. g. wars, embargoes, price hikes)

Such deviations from normal (expected) behavior are called exceptions. In this blog, we focus on exceptions of tasks in the M&A process. Let us pick one of the tasks of the process: Due diligence.

A task has goals (output-related) and objectives (quality of output). There are different ways to execute the task, which we call procedures. The attributes of the task Due Diligence are listed below.

In the picture below, you see the formal model of a task with its goals, objectives, procedures. In this model, exceptions can occur when goals or objectives are not met or when the procedure of the task fails.

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Let´s have a look at an example. There are patterns available how to react to failures of goals, objectives, procedures. The following information can be automatically generated based on the model of a task, in our example, the task "Target Due Diligence". For each task, there are procedures that define “normal behaviour”, but you should also define exception procedures that help in case something goes wrong.

For task "Target Due Diligence" the exception "Procedure fail" happens, the following options are available:

• Retry with different procedure

• Run exception procedure

• Let task fail

• Throw process exception

For task "Target Due Diligence" Objective "Risk minimized" the exception "Objective fail" happens, the following options are available:

• Change threshold of objective "Risk minimized"

• Defer improvement at a later point in time of objective "Risk minimized"

• Retry objective measurement of objective "Risk minimized"

• Exception driven rework to change objective result of objective "Risk minimized"

• Reject due to missing objective achievement of objective "Risk minimized"

• Compensation of objective "Risk minimized"

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For task "Target Due Diligence" Objective "Quality maximized" the exception "Objective fail" happens, the following options are available:

• Change threshold of objective "Quality maximized"

• Defer improvement at a later point in time of objective "Quality maximized"

• Retry objective measurement of objective "Quality maximized"

• Exception driven rework to change objective result of objective "Quality maximized"

• Reject due to missing objective achievement of objective "Quality maximized"

• Compensation of objective "Quality maximized"

For task "Target Due Diligence" Objective "Information asymmetry minimized" the exception "Objective fail" happens, the following options are available:

• Change threshold of objective "Information asymmetry minimized"

• Defer improvement at a later point in time of objective "Information asymmetry minimized"

• Retry objective measurement of objective "Information asymmetry minimized"

• Exception driven rework to change objective result of objective "Information asymmetry minimized"

• Reject due to missing objective achievement of objective "Information asymmetry minimized"

• Compensation of objective "Information asymmetry minimized"

For task "Target Due Diligence" Objective "Integration success maximized" the exception "Objective fail" happens, the following options are available:

• Change threshold of objective "Integration success maximized"

• Defer improvement at a later point in time of objective "Integration success maximized"

• Retry objective measurement of objective "Integration success maximized"

• Exception driven rework to change objective result of objective "Integration success maximized"

• Reject due to missing objective achievement of objective "Integration success maximized"

• Compensation of objective "Integration success maximized"

For task "Target Due Diligence" Goal "Due Diligence results prepared" the exception "Goal fail" happens, the following options are available:

• Change threshold of goal "Due Diligence results prepared"

• Deferred goal achievement at a later point in time of goal "Due Diligence results prepared"

• Retry measuring goal achievement of goal "Due Diligence results prepared"

• Exception driven rework to achieve goal of goal "Due Diligence results prepared"

• Reject due to missing goal achievement of goal "Due Diligence results prepared"

• Compensation of goal "Due Diligence results prepared"

The M&A process, with its complexities and potential pitfalls, demands a well-thought-out approach to exception handling. Fortunately, the patterns presented here give valuable insights that can guide us in defining exceptions and exception handling for each task involved in the M&A process.

New ways to handle task-related exceptions in mergers and acquisitions

Exceptions in the M&A process

Exceptions are present if

• Buyer or target or stakeholders change their expected behavior when transacting, transactions go wrong or do not generate the expected outcome

• Significant goals and objectives of tasks in the M&A process cannot be met or

• External effects hit (e. g. wars, embargoes, price hikes)

Such deviations from normal (expected) behavior are called exceptions. In this blog, we focus on exceptions of tasks in the M&A process. Let us pick one of the tasks of the process: Due diligence.

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A task has goals (output-related) and objectives (quality of output). There are different ways to execute the task, which we call procedures. The attributes of the task Due Diligence are listed below.

Let´s have a look at an example in the picture below. An acquirer wants to acquire a target company who provides a single product A via a share deal. But the target company has more products. That raises an exception. What are the different ways to handle this exception?

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The M&A process, with its complexities and potential pitfalls, demands a well-thought-out approach to exception handling. Fortunately, the literature cited in the picture provides valuable insights into various patterns that can guide us in defining exceptions and exception handling for each task involved in the M&A process.

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ORDER IN GERMANY

New ways to handle transaction related exceptions in mergers and acquisitions

Exceptions in the M&A process

Exceptions are present if

• Buyer or target or stakeholders change their expected behavior when transacting, transactions go wrong or do not generate the expected outcome

• Significant goals and objectives of tasks in the M&A process cannot be met or

• External effects hit (e. g. wars, embargoes, price hikes)

Such deviations from normal (expected) behavior are called exceptions. In this blog, we focus on exceptions of transactions.

Exceptions - why should i care?

You should care to avoid the „What you see is all there is“ trap
(D. Kahneman)

Which means can only see and handle situations that you have experienced, learned about, read or talked about.

Today, learning about exceptions is mainly driven by experience knowledge. Reason is: While there are many textbooks about M&A, very few talk about exceptions, even less about catastrophic exceptions like deal breakers and failures. That means if you are inexperienced you run the risks to run into exceptions without a plan. We should change that by providing knowledge about exceptions and by providing patterns of potential exceptions and how to address these.

transaction-related exceptions

Let us see an acquisition transaction as a technical transaction.

The acquirer purchases all shares or some assets of the target and compensates this deal usually with money or other means of payment.

The theory of transactions tells us that there are potential risks associated with both the sender and the receiver of a transaction behaving strangely. When the sender exhibits strange behavior, it may result in the transmission of inaccurate or misleading information or goods, leading to misinterpretations or misunderstandings by the receiver. This can disrupt the effectiveness of the transaction process and hinder the successful completion of the transaction. On the other hand, if the receiver behaves strangely, they may fail to comprehend or respond appropriately to the sender's message, resulting in the breakdown of effective communication. These behavioral uncertainties can introduce errors, delays, or even complete failures in the transactional communication process, emphasizing the importance of individuals involved in a transaction maintaining clear, consistent, and rational behaviors.

So, how do you handle the transactions on the right hand side? The following picture provides ways to handle them.

Rolling back and compensating transactions are powerful mechanisms that provide organizations with a safety net to rectify erroneous or fraudulent actions. By allowing the reversal of transactions, businesses can effectively undo any unintended or erroneous changes, restoring data integrity and eliminating any adverse impacts. On the other hand, compensating transactions come into play when a rollback is not feasible or practical. They help restore balance by executing a series of corrective actions that offset the negative consequences caused by a particular transaction, ensuring that the system remains consistent and reliable.

Looking at mergers and acquisitions, we see numerous exceptions in transactions. knowing about these and knowing about ways to handle these exceptions is paramount.

Leveraging Detection of Patterns in Mergers and Acquisitions

Mergers and acquisitions (M&A) have become increasingly prevalent in the business world over the last few decades. While these strategic business moves often bring about significant opportunities, they also come with their fair share of challenges. One such challenge is the identification of patterns during the M&A process. The ability to detect patterns allows for a more strategic and successful integration of two companies. Automated detection of patterns empowers M&A professionals even more. Automatic pattern detection Here are some ways in which detection of patterns can be leveraged during M&A:

Identifying Red Flags

One of the primary uses of pattern detection is identifying any red flags that might prevent an M&A from being successful. Potential issues could include operational inefficiencies, compatibility issues with leadership styles, or cultural mismatches. Imagine identifying these potential problems automatically on day one of the due diligence phase. This allows for solutions to be put in place before they become major issues.

Predicting Future Trends

Patterns in data can help to predict future trends in the industry. By automatically analyzing market trends and identifying patterns of consumer behavior, businesses can position themselves for future success.

Better Resource Allocation

The detection of patterns in M&A can also enable businesses to allocate resources more effectively. By analyzing data, businesses can identify areas of overlap and redundancy, and then optimize resources to reduce costs and improve productivity.

Improved Decision-Making

The ability to identify patterns during M&A can lead to better decision-making. By analyzing patterns and predicting future trends, businesses can make more informed choices about where to invest their time, money, and resources.

Summary

The detection of patterns is an essential tool for companies looking to successfully navigate the M&A process. It allows for better resource allocation, improved decision-making, and the identification of potential issues before they become major problems.