The Deals a Board Never Closes Are Missing From the Record

A board that turns down an acquisition has made a claim about the future: the company avoided a loss. That claim gets stated once, in the meeting where the decision happens, and nothing in the company's reporting ever comes back to test it.

Completed deals, by contrast, get tested constantly. Integration goes the way the plan said, or it does not. Customers stay, or they go. The numbers arrive in next year's results, inside the same reporting the board already reads. A declined deal leaves a slide deck nobody opens again and a line in the minutes. So a board knows exactly how its acquisitions turned out. It has no record at all of how its refusals turned out.

Years later, somebody goes back and looks at one of those decisions. A board had a company in front of it, decided the price was more than it wanted to spend, and declined. Somebody else bought it. The price the board turned down is well under what that business is worth today. It has done well since, and it now competes with the company that passed on it.

Bring that back to the same board, and the reaction is usually some version of, "We should have closed that deal." Somebody will point out that it sold for more than the company would ever have approved, so it was never going to get that business anyway. That may be true. Either way, nobody wrote down the price, the reason the board said no, or what the business went on to sell for. The reaction passes, and the board is no better equipped to set the next number than it was before.

A company documents the deals it completes because it has to. The deals it declined survive in the memory of whoever was in the room, and those people leave. Directors rotate off, a chair retires, the executive who built the model moves on. Five years out, a board trying to understand its own judgment on price has very little to work with.

None of that missing history changes the next time the company has a target in front of it, and the board starts working through price. Somebody puts a number on the table as the most the company will pay, the room converges on it, and nobody there has any evidence about how the last several of those numbers turned out. The ceiling gets set on instinct and on whatever anyone in the room recalls.

This record is not a list of regrets. Plenty of declined deals hold up, and the record needs to show that too. Maybe the company was not in a position to take the deal on. Maybe the board would not have slept at night if it had gone through, or it simply did not know then what it knows now. A board that only looks back at the deals it wishes it had done sees nothing but its own mistakes.

The record also has to hold the times the advice was wrong. Boards have overruled my recommendation and been right. Once, I was too hard on a deal; the board went ahead anyway, and the deal paid off. That call belongs in the record too, not just the ones that turned out the way the recommendation said they would.

The same gap shows up before a decision ever happens. In an industry with a serial acquirer, the board should track acquisitions and ask management to assess each deal's impact on the company's competitive position. They should also ask whether the company was contacted about the deal; if not, why; and if so, why it passed. An answer like "we could not move fast enough" deserves the same scrutiny as a price the board actually turned down, not a nod and a move to the next item.

A board's read on price comes from watching which deals work and which fail. A board that sees the outcome of every deal it closed, none of the deals it declined, and none of the deals it never got the chance to see is working from only part of the information.

The next time the board says no to a deal, or finds out too late that it never got the chance to review a deal, someone in the room should write down why. Reviewing that record once a year keeps the next board from learning the same way this one did.