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Risk Trends in 2024 and Beyond: Merger and Acquisition (M&A) Integration

Risk Trends in 2024 and Beyond: Merger and Acquisition (M&A) Integration

Synopsis
4 Minute Read

Canadian M&A activity is back on the rise, and companies should be mindful of the changing risk landscape as they pursue transactions.

Beyond the practical considerations, it’s also critical to look for signs of financial mismanagement, fraud, and corruption in the due diligence process.

Moreover, potential acquirers will want to consider the impacts of poor technology integrations and cyber vulnerabilities — as well as the target company's approach to governance, ESG exposures, and cultural issues impacting employee retention.

Companies with an effective enterprise risk management and/or internal audit function will be the easiest to assess for potential fit and value across all risk areas.

Managing Director
Partner, Valuations and Litigation Support
Managing Director
Managing Director, Corporate Finance
This insight is one of 15 risks in our 2024 Risk Trends Report. Navigate back to the main page for the full list of risk trends that you should be monitoring for in the year ahead.

Are you aware of the risks you are inheriting with your acquisition?

Following a sizable dip during the pandemic, Canadian M&A activity is back on the upswing. Private equity firms and growth-minded businesses will be eager to capitalize on the increased transaction volume. Still, they should also be mindful of the changing risk landscape during the due diligence process.

Major dealbreakers such as financial mismanagement or pending litigation must still be top of mind for potential buyers. However, we also know that instances of fraud and corruption spiked during the pandemic — much of which has yet to be uncovered or reported. Many organizations have also haphazardly introduced new digital platforms and tools over the past three years. Poor integrations could be costly to fix, while cyber vulnerabilities may open the door for a crippling attack if they’re not quickly weeded out and remediated.

While these risk areas may not be immediately apparent, the company’s approach to governance can be revealing. Other areas that require a deeper look include the business’s ESG exposures and the steps they’ve taken to quantify and improve exposures within the business and across their supply chain. This is especially relevant for private equity firms whose investors may be expecting progress in the areas of sustainability, diversity, and social welfare. Also, the internal climate within the business and how cultural issues have impacted its ability to attract and retain key employees is critical.

Companies that have an effective enterprise risk management and/or internal audit function will be easier to assess for potential fit and value across all risk areas. Those that don’t may still be a viable M&A target, but they will require increased scrutiny — and the costs of addressing key risk areas need to be factored into the final valuation and post-merger integration plan.

Related risks

  • IT/OT Governance, controls, and specifically cyber risk
  • Data and system integrity issues
  • Cultures in conflict
  • Inability to achieve required synergies

""Key questions to ask

  • Does your due diligence process include IT/OT controls and governance, the ability to meet investor ESG expectations, an awareness of any risk related to fraud and corruption, cultural issues, and proactive enterprise risk management activities?
  • Are you clear at the outset which factors would be dealbreakers, and have you set parameters for a “no-go” decision?
  • Have you ever disqualified a merger or acquisition due to an unacceptable level of risk? Based on this, what do you feel is the risk appetite of the board and executive?

""Red Flags

  • New cyber, ESG, fraud, or corruption issues related to acquisitions or mergers
  • Errors found in data
  • Excessive cost and time required to achieve integration targets
  • Morale issues and excessive turnover

Internal Audit Project Opportunities

Financial Due Diligence
This audit focuses on assessing the financial health and performance of the target company. It involves a thorough examination of the target company's financial statements, cash flow, assets, liabilities, and financial projections.
Tax Due Diligence
This audit examines the target company's tax compliance history, potential tax liabilities, and the effectiveness of its tax strategies.
Legal and Regulatory Compliance Audit
This audit ensures that the target company complies with all relevant laws and regulations, including industry-specific regulations, environmental laws, labour laws, and corporate governance requirements.
IT Systems and Cybersecurity Audit
This audit assesses the target company's IT infrastructure, information security measures, and data privacy practices to identify potential vulnerabilities and risks.
Human Resources and Employee Benefits Audit
This audit reviews the target company's HR policies, employment contracts, benefits plans, and potential labour issues that may arise during the integration process.
Intellectual Property Audit
This audit evaluates the target company's intellectual property portfolio, including patents, trademarks, copyrights, and trade secrets, to ensure they are properly protected and documented.
Contract and Agreement Audit
This audit examines the target company's contracts and agreements with customers, suppliers, and partners to identify any unfavourable terms or potential legal issues.
Environmental and Sustainability Audit
This audit assesses the target company's environmental impact and sustainability initiatives to identify potential liabilities or risks associated with environmental compliance.
Cultural Alignment Audit
This audit evaluates the cultural compatibility between the two companies to identify potential challenges in integrating their workforces and operations.
Synergy Assessment Audit
This audit analyzes the potential synergies and cost savings that can be achieved through the merger or acquisition and assesses the feasibility of achieving those targets.
Post-Merger Integration Audit
This audit evaluates the effectiveness of the integration process after the merger or acquisition, identifying any issues or areas that require further attention.
Benefits Realization Audit
This audit determines if the expected benefits have been realized post-implementation.

Risk Trends in 2024 and Beyond

View all the risk areas featured in this year’s report. 

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