RISK MANAGEMENT: PRACTICAL LESSONS FROM PRELIMINARY DUE DILIGENCE IN BANK M&A

Every business venture involves taking risk in the hope of returns. The question is, what kind of risk, and what kind of returns? Expectations vary. So do standards for balancing the two. This is why the fields of accounting, finance, management, politics and law all concern themselves with risk management.

This article concerns the specialised area of risk management known as ‘due diligence’ as it applies to the mergers and acquisitions of commercial banks. We will focus on the preliminary due diligence conducted in the early stages of acquisition; the later phase, confirmatory due diligence, can also be instructive but lies outside the scope of this brief article.

Our choice of subject may seem narrow but in fact it could well have broader application. Mergers in general (in all industries) form an important part of the economy, and bank mergers are a very common type of merger. Bank M&A due diligence may offer lessons that extend beyond the world of commercial banking to a broader realm of acquisitions in other industries. 

Oct-Dec 2013 Issue

NACD