UK: Four Steps to Risk Management in Mergers & Acquisitions

Like other preparations for mergers and acquisitions activity, risk management should be part of the deal from the very beginning. "Risk management needs to be brought in at the earliest stages of management’s plans, if it is to be effective," says Paul Buckley, Lucent Technology’s treasury director specializing in risk management. Buckley says sometimes that means rethinking a transaction and, if the deal seems risky, changing courses and not moving ahead.

Chris Mills, Andersen Business Consulting partner in London, agrees. "At a minimum, specific risk assessments must be conducted during the preliminary analysis to detect clues whether merger negotiations should continue and again at the end of due diligence," he says.

Managing the inevitable uncertainty and risk of an M&A transaction is essential to success. Mills recommends spectrum analysis as a way to "manage the risk and uncertainty inherent in any merger." He says that the process is "based on a firm understanding of the inferences that underpin the risk, in order to identify factors that might jeopardize the success of the merger."

Spectrum risk analysis helps you identify possible problems and resolve them before they become catastrophic. It involves four simple steps:

1. Create a risk management structure. Set up integration teams to analyze and solve potential problems and communication barriers.

2. Pinpoint concerns and issues. Charge the integration team with seeking out unanticipated issues and categorizing problems and risks as "live" or "latent."

3. Prioritise and communicate risks. Rank the list of risks created by the integration team from most serious to least serious.

4. Attack the risks. After assessing all risks, develop a plan and put it into effect to eliminate potential problems.

Risks can change, so a degree of flexibility must be at the heart of every risk analysis and management program. Despite the best planning, unanticipated factors can come into play, including external conditions over which management has little or (sometimes) no control. The ability to change from the inside, to re-evaluate and revise constantly is sometimes the only way to deal with the outside.

In today’s business world of fluctuating markets, laws and new technology, the only thing we can count on for sure is change. So how can you be successful? Plan your risk management strategy carefully and then be willing to revamp it ruthlessly to suit the quirks you encounter.

For more information on risk management, contact your local Andersen Legal office.