Is hindsight two and twenty? I struggle to remember what I did yesterday, let alone months or even years ago.
I struggle to remember what I did yesterday, let alone months or even years ago.
After closing an M&A deal, most people dread receiving questions like:
- “did we know about [insert something that has now got people worried] and what did we do about it?”
- “do you remember why we decided to [insert decision that now looks questionable]”.
First you usually have to dig-up the deal docs and dust-off the old DD reports.
And then somebody would ctrl+f their way through them.
As DD reports and agreements only speak to a moment in time, to answer these sorts of questions, you may also have to trawl through emails, essentially panning for gold.
If lucky, you might stumble across an email trail or an old issues list that clearly speaks to the very specific point that you are hoping to find a cogent response to.
However, as so many compromises / horse-trades are made in real time at the negotiating table (literal or figurative), the audit trail can quickly run cold.
When that happens, without conclusive evidence of why certain calls were made at the time, your best hope may be that something jogs someone's memory.
Of course, that is more challenging if the relevant team members have moved-on.
These sorts of inquisitions rarely take place because something good has happened.
And if the questions are triggered because a problem has arisen post-signing/closing, it is never a comfortable place to be.
In reality, throughout a deal, deal teams and advisors process mountains of data and assess a vast number of identified issues.
The best operators tend to be those that quickly and effectively cut-through the noise and focus on the key issues.
But, even the best can feel more than a little sheepish when Black Swan events arise.
When calls are made to “take a view” on - or not to address - certain issues, it is hard to look smart if / when they crystallise and the consequences are not immaterial.
That’s a fact of life. And that’s a risk that the best consciously or sub-consciously accept.
Nonetheless, it is increasingly recognised that having a form of (near) contemporaneous record of key decisions – and why they were made – is not such a bad idea.
As one partner told me “given recent challenges on a couple of large deals, we are looking at ways to improve how we better capture decisions the team makes and why”.
A number of organisations – such as some of the larger government-linked investors (e.g., SWFs and pension funds) – instil this discipline because they apply their more general internal audit processes to their M&A deals too.
Although that can come with its own challenges.
Some GPs also use these sorts of practices to demonstrate good governance to their prospective LPs and co-investors.
It makes sense. Hindsight is perhaps not twenty-twenty, rather two and twenty…
Have you ever found yourself in a similar position? What would you have done differently?
