Internal audit can add value to the M&A life cycle
What's the fix?
There are six key areas where internal audit can play a crucial role in an organization's M&A life cycle:
Internal audit should act as advisor to the program management team.
- Strategy. An organization may have a target in its sights, but before it makes a move, internal audit should assess the corporate strategy process, assess the risks to the organization and assess the business case process. This will help the organization determine from the beginning whether the acquisition target aligns with the organization’s corporate growth strategy.
- Due diligence. During the due diligence process, internal audit can assess the valuation process, the risks and internal control environment, corporate governance and the synergy validation process. These assessments will enable the organization to determine whether the price is right, to provide early insights on any risk or control issues that may be lurking beneath the financial statements and to uncover what kind of synergies the acquisition target offers to improve the buyer’s return on investment.
- Deal approval and close. Before the organization signs on the dotted line, internal audit can review the deal approval process to confirm that short- and long-term goals are defined before the deal closes. Internal audit can also assess and monitor the valuation process leading up to the close to determine the possible impact of any changes in the risk and control environment, changes in anticipated synergies or changes in key personnel.
- Integration. Internal audit should be part of the integration team representing the internal audit function to promote the use of leading practices throughout the integration. Internal audit should assess the integration design and planning processes, integration project management, and integration execution to help mitigate transaction risk and “value leakage” through the integration life cycle.
- Transaction value assessment. As an independent party, internal audit should lead a company’s effort to conduct a look-back review of each significant acquisition. Internal audit should conduct these reviews 18 to 24 months after integration and focus on realized value and the associated root causes that resulted in exceeding or falling short of transaction expectations.
- M&A program management. Throughout the M&A process, internal audit should form a part of the program management team so that it can assess and monitor program management activities and provide key insights. Internal audit can also audit program management activities to highlight process gaps and areas of future improvements.