More than a few of today's M&A deals have been subject to shareholder lawsuits. The basic of most of these suits is the lack of a supportable valuation or fairness opinion. Compounding these questionable financial presentations are the real or apparent conflicts of interests among individual board members and investment bankers and key advisors to the transaction.
There are no absolute, magic bullets to preclude a suit. However, there are obvious protections or processes that should be employed. Some of the most critical precautions follow:
- Board of Directors
- For any proposed transaction, use an independent committee of directors to conduct the process.
- Directors should not also serve as financial advisors on the deal.
- All relevant, key factors affecting the deal must be disclosed and documented.
- Outside financial advisors (IBankers, etc.) engaged for the transaction must act with impunity.
- Deal Advisors
- Thoroughly document their findings and underlying assumptions.
- Complete a verbal presentation before committing financial analysis to writing, as assumptions during the transaction process may be fluid.
- Know that draft documentation may be subject to outside scrutiny.
- Impartiality is far more important than assuaging the client.