Exceptions in the M&A process

Exceptions are present if

• Buyer or target or stakeholders change their expected behavior when transacting, transactions go wrong or do not generate the expected outcome

• Significant goals and objectives of tasks in the M&A process cannot be met or

• External effects hit (e. g. wars, embargoes, price hikes)

Such deviations from normal (expected) behavior are called exceptions. In this blog, we focus on exceptions of tasks in the M&A process. Let us pick one of the tasks of the process: Due diligence.

A task has goals (output-related) and objectives (quality of output). There are different ways to execute the task, which we call procedures. The attributes of the task Due Diligence are listed below.

In the picture below, you see the formal model of a task with its goals, objectives, procedures. In this model, exceptions can occur when goals or objectives are not met or when the procedure of the task fails.

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Let´s have a look at an example. There are patterns available how to react to failures of goals, objectives, procedures. The following information can be automatically generated based on the model of a task, in our example, the task "Target Due Diligence". For each task, there are procedures that define “normal behaviour”, but you should also define exception procedures that help in case something goes wrong.

For task "Target Due Diligence" the exception "Procedure fail" happens, the following options are available:

• Retry with different procedure

• Run exception procedure

• Let task fail

• Throw process exception

For task "Target Due Diligence" Objective "Risk minimized" the exception "Objective fail" happens, the following options are available:

• Change threshold of objective "Risk minimized"

• Defer improvement at a later point in time of objective "Risk minimized"

• Retry objective measurement of objective "Risk minimized"

• Exception driven rework to change objective result of objective "Risk minimized"

• Reject due to missing objective achievement of objective "Risk minimized"

• Compensation of objective "Risk minimized"

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For task "Target Due Diligence" Objective "Quality maximized" the exception "Objective fail" happens, the following options are available:

• Change threshold of objective "Quality maximized"

• Defer improvement at a later point in time of objective "Quality maximized"

• Retry objective measurement of objective "Quality maximized"

• Exception driven rework to change objective result of objective "Quality maximized"

• Reject due to missing objective achievement of objective "Quality maximized"

• Compensation of objective "Quality maximized"

For task "Target Due Diligence" Objective "Information asymmetry minimized" the exception "Objective fail" happens, the following options are available:

• Change threshold of objective "Information asymmetry minimized"

• Defer improvement at a later point in time of objective "Information asymmetry minimized"

• Retry objective measurement of objective "Information asymmetry minimized"

• Exception driven rework to change objective result of objective "Information asymmetry minimized"

• Reject due to missing objective achievement of objective "Information asymmetry minimized"

• Compensation of objective "Information asymmetry minimized"

For task "Target Due Diligence" Objective "Integration success maximized" the exception "Objective fail" happens, the following options are available:

• Change threshold of objective "Integration success maximized"

• Defer improvement at a later point in time of objective "Integration success maximized"

• Retry objective measurement of objective "Integration success maximized"

• Exception driven rework to change objective result of objective "Integration success maximized"

• Reject due to missing objective achievement of objective "Integration success maximized"

• Compensation of objective "Integration success maximized"

For task "Target Due Diligence" Goal "Due Diligence results prepared" the exception "Goal fail" happens, the following options are available:

• Change threshold of goal "Due Diligence results prepared"

• Deferred goal achievement at a later point in time of goal "Due Diligence results prepared"

• Retry measuring goal achievement of goal "Due Diligence results prepared"

• Exception driven rework to achieve goal of goal "Due Diligence results prepared"

• Reject due to missing goal achievement of goal "Due Diligence results prepared"

• Compensation of goal "Due Diligence results prepared"

The M&A process, with its complexities and potential pitfalls, demands a well-thought-out approach to exception handling. Fortunately, the patterns presented here give valuable insights that can guide us in defining exceptions and exception handling for each task involved in the M&A process.