The drama that descends on boardrooms during takeover deals has been studied by scores of researchers (and television writers).
But most scholars have examined acquisitions from the buyer’s point of view, says Jerayr "John" Haleblian, a University of California at Riverside business professor. Few have investigated board behavior on the other side of the bargaining table: the targeted company. How do those directors secure the best possible sale price for shareholders?
Haleblian and two professors from business schools in Zurich and Frankfurt gathered data from more than 400 public company acquisitions between 2002 and 2014. They hypothesized that boards that met more often would extract higher sale prices. They also predicted that board composition mattered, so they analyzed the effects of having board members with M&A experience and gender diversity.
Many of their assumptions were accurate. Boards that convened more frequently landed better deals, and that effect was enhanced when a company had at least one female director—even more so with two. Having two directors with experience navigating a takeover was also linked to higher sale prices. And a board’s ability to negotiate higher premiums suffered when even one director at a target company was “overboarded,” meaning they had three or more board seats.
The financial impact of these variables was not paltry. The study found that the target company's sales price was about 5% higher when a woman sat on the board. “If the difference had come out to $100,000 or something, who cares?” says Haleblian. But each of these drivers changed the company’s value by multiple millions of dollars.
There were, however, some limitations to the study. The researchers didn’t interview directors about how gender diversity or meeting frequency influenced their negotiating tactics, so they had to make inferences to explain their results. They also couldn’t measure the benefits of having multiple female board members because none of the firms in their dataset had more than two. (Only one-third of the boards studied had any women among their ranks.)
Still, the study confirmed current views about board composition and engagement. “You want board members who are attentive, have their mind in the game, have relevant experience, and have a diversity of views,” says Haleblian. When companies are up for sale, he adds, boards should meet at least monthly and adjust their schedules accordingly as the transaction gets more complex.
Boards that follow this recipe will see a richer assessment of a deal’s terms, and will require more time, which is a good thing, says the professor. Boards that rush into an agreement often earn less than they could have if they had spent more time exploring all angles.
Lila MacLellan
lila.maclellan@fortune.com
@lilamaclellan
