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Bank Deal Underwriters Should Require a C-Suite Compatibility Analysis

Picture of Tim Hough By   ·  2 minute read

The private equity (PE) industry has experienced significant growth in recent years, with firms acquiring a wide variety of companies to optimize their portfolios. As part of this process, bank deal underwriters play a crucial role in ensuring that the transactions are both financially sound and beneficial to all parties involved. One key aspect that should be considered in these transactions is C-suite compatibility, which measures the synergy and alignment between the executive leadership teams of the acquiring and target firms. In this blog, we will discuss the importance of C-suite compatibility analysis for private equity acquisitions and why bank deal underwriters should make it a requirement.

  1. Improved Performance:

Research has shown that C-suite compatibility can significantly impact the overall performance of the acquired company after a transaction (1). When executive leadership teams are aligned in terms of their values, strategies, and goals, they are more likely to work together effectively and drive the company towards success. Requiring a C-suite compatibility analysis ensures that both parties share a common vision, leading to better decision-making and more efficient integration.

  1. Reduced Integration Risks:

Integrating two companies can be a complex and challenging process, with many potential pitfalls (2). A C-suite compatibility analysis can help to identify and mitigate these risks by ensuring that the executive teams are on the same page from the start. This enables smoother and more successful integration, reducing the likelihood of clashes between company cultures and minimizing the risk of operational disruptions.

  1. Enhanced Talent Retention:

The success of any company depends on the talent it retains, especially at the executive level. A C-suite compatibility analysis can help to predict how well the leadership teams will work together and how likely key executives are to stay with the company post-acquisition (3). This information is invaluable for both the acquiring firm and the underwriters, as it can help to identify potential retention issues and address them proactively.

  1. Better Due Diligence:

Bank deal underwriters have a responsibility to conduct thorough due diligence on potential transactions to ensure that they are in the best interests of all parties involved. Requiring a C-suite compatibility analysis as part of this process ensures that underwriters have a more comprehensive understanding of the risks and opportunities associated with the deal (4). This helps them to make more informed decisions and provide better guidance to their clients.

  1. Increased Deal Success Rates:

Ultimately, the goal of any private equity acquisition is to create value for both the acquiring firm and its investors. By requiring a C-suite compatibility analysis, bank deal underwriters can help to increase the likelihood of successful transactions and better returns on investment (5). This benefits not only the parties directly involved in the deal but also the broader market and economy.

Conclusion:

In summary, C-suite compatibility analysis is a crucial component of private equity acquisitions, as it can have significant impacts on company performance, integration, talent retention, and deal success rates. As such, it is in the best interest of bank deal underwriters to require this analysis as part of their due diligence process, ensuring that they are providing the highest level of service and guidance to their clients.

Sources:

  1. Barkema, H. G., & Schijven, M. (2008). How do firms learn to make acquisitions? A review of past research and an agenda for the future. Journal of Management, 34(3), 594-634.

  2. Gomes, E., Angwin, D. N., Weber, Y., & Tarba, S. Y. (2013). Critical success factors through the mergers and acquisitions process: Revealing pre- and post-M&A connections for improved performance. Thunderbird International Business Review, 55(1), 13-35.

  3. Graebner, M. E., Heimeriks, K. H., Huy, Q. N., & Vaara, E. (2017). The process of postmerger integration: A review and agenda for future research. Academy of Management Annals, 11(1), 1-32.

  4. KPMG. (2016). The art of successful deal-making: Why do some deals succeed while others fail? KPMG International Cooperative. 

  5. Laamanen, T., & Keil, T. (2008). Performance of serial acquirers: Toward an acquisition program perspective. Strategic Management Journal, 29(6), 663-672.