The financial press loves a good courtship, and you’ve doubtless seen the breathless coverage of corporate matches made in heaven, where two corporate entities announce their intention to combine.

While some of these deals go through, a conspicuous number of them abruptly call off the metaphoric wedding, leaving people scratching their heads as to what went wrong.   In my years of working with corporate boards, I’ve identified the five most common deal-killers that are brought on by boards of directors. These aren’t intrinsic flaws in the deal, but instead unwitting negative behaviors among the board of directors themselves.

As the pandemic recedes, we are already seeing an upsurge in M&A activity, and this is likely to soar to unprecedented levels.  This means that corporate boards will have significant opportunities to create value through M&A; but by the same token, if they don’t monitor for deal-killing behaviors, they run the real risk of not only running deals of the rails, but also of destroying real value.

1. They get emotional about valuation. t’s been said that valuation is like beauty – it’s in the eye of the beholder.  As such, buyers and sellers will necessarily have different perceptions of value for any given business.  While sophisticated board members accept this premise intellectually, I’ve lost count of how many times I’ve seen board members react with unrestrained emotionality on the subject of valuation. Buyers often react with incredulity that can veer into moral outrage (“they want how much for that business?!”), and I’ve seen these emotional responses cause them to actually lower their original valuation – as though the very nerve of the seller’s ask somehow makes the business worth less. Conversely, sellers frequently take it as a personal affront if the buyer’s valuation is far south of their own, and their indignation can shut down possibilities for meaningful conversation.  It’s the emotional response that gets in the way.
2. They give their sergeants too much power. Buying or selling a business involves risk, and well-intentioned boards often appoint “sergeants” to diligence these risks.  These sergeants are frequently attorneys, authorities in the relevant sector, or financial experts, which is logical enough. The trouble is, they give these sergeants entirely too much power, often unwittingly given them implicit veto power over the deal. This subverts the normal hierarchical structures in the business, wherein the CFO and GC, for example, have advisory functions on most decisions, and the majority of their advice is provided to the CEO. But in the heat of a high-risk deal, they frequently have more interactions with individual board members, and those directors are less familiar with the communicative styles of the sergeants. Whereas the CEO will know, for instance, when a cautionary note from the GC is just that or when it’s a red flag; individual board members lack that experience and knowledge. In the high-risk environment of a transaction, board directors can treat every minor warning as a potential deal breaker.  This not only heightens risk perception within the board, but it also risks alienating the CEO.
3. They don’t empower their general. If boards listen too much to their various sergeants, they too often don’t listen enough to their anointed general. The CEO will always have more information than anyone else on the overall state of the business, and as such, she is the most qualified to make holistic decisions and recommendations about the direction of the organization. Boards generally adhere to this principle in normal times, but when the electric energy of a transaction takes hold, this healthy dynamic can be torn asunder. Previously passive board directors too often feel the need to swoop in and micro-manage minutia, causing distraction and often offense for the CEO. . . and at a time when the organization can least afford it. When I share this risk with board directors, they often scoff, saying there’s no way it can happen to them.  But it’s usually the most experienced board directors who make this mistake: Their experiences necessarily involve failures, and the sting of those failures can prompt them into misguided attempts to second-guess their general, upon whom everyone relies.  This disempowers the CEO, which risks affecting negotiations with the other party.  Even worse, the other side is likely to smell this disarray and seek to exploit it.
4. They don’t talk to the teams on the ground. While boards talk too much to their sergeants, and have flawed conversations with their general, it’s ironic that they often have no conversation at all with the people who will be doing the post-transaction work of the business. These are the troops on the ground, and they are vital to the success of any buy- or sell-side deal.  The rank and file ensure operational continuity and integration of the new asset, and they will manifest the new culture of the combined entity. At the same time, they are the parties whose jobs are often impacted:  Some roles are invariably eliminated, while others are changed.  This understandably causes anxiety among those troops on the ground, and with no malicious intent their worries are frequently filtered up through the sergeants referenced above.  Out of simple motives of self-preservation, they can skew those sergeants’ perception of risk, sometimes highlighting threats that don’t exist!  Yet board directors almost never communicate with the rank and file during a contemplated transaction, which only inflames these problems.  A simple, honest communication from the board about the future of the business, and targeted to relevant employees, can stop this dynamic, which otherwise can sideline a deal.
5. They focus on the transaction, not the transformation. This is by far the most common deal-killer, and tragically it’s entirely avoidable.  Acquisitions are by their nature sexy and exhilarating; when rumors of a deal get started, they spread through the organization like wildfire, usually with excitatory effect.  Buyers focus on bringing in that “pot of gold” they can’t build themselves—whether it’s innovation, scale or market prominence. The enthusiasm for these dimensions becomes its own thing and too often converts to a thrill-of-the-chase dynamic, complete with chest-thumping bravado that can overtake a board.  For sellers, the notion of a lucrative outcome has similar effect, with everyone from board on down metaphorically counting their money, long before it’s received.  Their pride in what they’ve built, validated by what they assume will be a lucrative outcome, skews their perceptions of valuation . . . and their own importance, blinding them to the concerns of the buyer. The hyper-charged emotions of these mindsets are antithetical to deal-making, precisely because they are selfish. These moods are broadly about conquering, when collaborating is what is required. To ensure a successful deal, boards should focus on the transformation that happens on the other side. But too often they obsess over the spoils of the deal, causing them to lose sight of what actually happens after the deal is done.

This is why the majority of acquisitions fail to produce what is intended with the deal in the first place. Boards don’t take M&A lightly, but they do tend to worry about the wrong things in the heat of a transaction.  If they focus on avoiding these errors, boards can have more powerful conversations with the right people, maximizing their odds of a successful deal.  Critically, this can bring about a true post-deal transformation.