In this excerpt of Chapter 3 from Mergers and Acquisitions Security, authors Edward Halibozek and Gerald Kovacich discuss the responsibilities of the security department during a merger or acquisition.
As alluded to earlier, the importance of security in support of a merger or acquisition can't be overemphasized. All mergers and acquisitions are faced with security issues and concerns. To properly handle them, security managers need to be involved. The extent of security involvement varies depending on the complexity and size of the total effort. Moreover, security issues and concerns vary according to the nature of the business, type of industry, and the maturity of the security programs. For example, security issues common to the banking industry differ from security issues common to the transportation industry.
Security and the security manager play a supporting role. Like many other supporting organizations, security contributes to the overall success of the effort. Security is not the most critical component of a merger and acquisition team. The merger and acquisition team has a mission to:
- Identify potential targets for acquisition
- Assess those target companies
- Execute the merger or acquisition
The most critical function of any merger or acquisition team is to properly assess the value of a target company. That responsibility lies with the financial team. That is not to say that security is not an important element in preparing for and executing a merger or acquisition; therefore, it should not be ignored or relegated to a role of less significance. The paramount concern of the merger and acquisition team is to identify and properly value a target company.
The financial team focuses on determining the current financial condition of the target company. It also assesses its future earnings capabilities. With that information, a value is placed on the target company. This process is much like the actions of any serious investor when looking for an investment opportunity in any company. Investors seek the optimum deal. A deal that adds value to the acquiring company thus benefits its owners. When one company acquires (purchases) another company, that transaction is an investment. The role of the security manager is to do what is necessary to support the merger or acquisition team in its effort to accomplish this mission.
In any event, security plays an important role on the merger and acquisition team. The security team has a responsibility to mitigate risks and protect the interest of the company, its owners and shareholders. In support of this obligation, security, as a member of the merger or acquisition team, helps the team make informed decisions and execute a successful transaction.
It is not always apparent to the merger or acquisition team leadership that security needs to be an active member. Nor is it always apparent in the early stages of the effort that the team will encounter situations where expert security support is essential to properly protect the effort and/or its related assets. This is particularly true with new or inexperienced teams.
Team leaders and team members with little to no experience in mergers and acquisitions may not recognize the importance of ensuring that security is an intricate part of the process. If this is the case, it is incumbent on the security manager to work with team leadership and help them understand the role security should play. Doing this early in the effort may help avert security problems from developing later on. Essentially, it may require the security manager to "sell" security to the team. It is important to sell security to team leadership based on real issues and the value security brings to the effort. Don't oversell with exaggerated claims of what security can or should accomplish. Be realistic. The credibility of the security manager and organization is at stake.
Selling security may be as simple as meeting with the team leadership, or all its members, and providing advice and counsel on relevant security issues and concerns along with creating an understanding of what the security organization can do to support the effort. In some instances, selling security may not be so easy and may require the development of a more formal business case characterizing to team leadership the precise value security brings to the effort. In developing the business case, the security professional should keep separate the protective role from the assessment role; thereby ensuring both are communicated and understood.
Read the rest of Chapter 3, The role of security and the security manager in mergers and acquisitions.
This was first published in July 2005