Winning ISS Support in Contested Transactions

Rodolfo Araujo, CFA | June 3, 2025

Not long after I published a note on what it takes to win ISS support in a proxy contest, I started getting a related question: What about contested M&A? The stakes are often high in these situations. In a proxy contest, there is room for compromise to prevent an undesirable vote outcome. In a contested transaction, there usually is not. Once a board signs a merger agreement, it assumes a legal obligation to see it through, even if conditions change. When deals fail, they often trigger leadership changes at the top. That dynamic makes ISS’s role in evaluating contested M&A more complex and consequential.

When reviewing transactions, ISS focuses on three key areas: strategic rationale, governance, and valuation. It conducts separate analyses for the target and acquirer (if both require shareholder votes) and can, and often does, issue split recommendations if the transaction appears lopsided.

The core question for ISS in these situations is simple but critical: Did the board negotiate the best possible outcome for shareholders? That means creating value or, at a minimum, mitigating downside risk.

Strategic Fit: Does the Deal Align with Your Equity Narrative?

The first and most important consideration for the board should be ensuring that ISS and investors understand the strategic rationale for the deal. The transaction should align with the company’s equity narrative—the value-creation story the board and management have been telling the market. Ideally, the deal accelerates or reinforces the company’s path to value creation. Alternatively, it may present a new direction that delivers a better value proposition. But if it is the latter, the board must work harder to articulate how and why the equity story is evolving.

I explore further why investor alignment is essential, especially in high-stakes decisions like these, in this article about bridging the gap between management’s intentions and investor expectations.

Governance: Was the Process Credible?

A key question ISS asks is whether the board ran a credible, conflict-free process. Is there evidence that directors genuinely sought to maximize value for shareholders? The quality of the process matters as much as the outcome.

Factors such as whether the board pursued an open auction, how potential conflicts were managed (especially when management stands to benefit personally), and the extent of board involvement all come under scrutiny. And here, disclosure is key.

One example that stands out involved a leisure company. Activists publicly challenged the deal, arguing the company was being sold too cheaply. But once the board disclosed the background of the process, including a comprehensive sales effort that yielded only one credible offer, the opposition dissipated. ISS recommended in favor, and the deal passed by a wide margin.

Contrast that with another case involving an energy company. According to the proxy statement, the CEO—who would lead the combined company—had led the negotiations, with the board later claiming involvement retroactively. By then, trust had eroded. ISS recommended against the deal, and only after the offer was improved did it ultimately receive a positive ISS recommendation and shareholder approval. I wrote about that case five years ago, discussing the importance of transaction process disclosure.

Valuation: Relative Value, Not Intrinsic Value

When it comes to valuation, ISS does not rely on discounted cash flow models (DCFs), and neither do most investors. The focus is on relative value and current market expectations: How does the offer compare to precedent transactions and trading multiples? Are target shareholders receiving a fair price based on consensus forecasts? Is the acquirer at risk of overpaying and destroying long-term value? And how does the offer compare to other options, such as remaining a standalone entity?

ISS often engages with investors to understand how they value businesses in a given sector. The objective is to align its perspective with investor views in order to identify red flags—transactions that appear mispriced, one-sided, or overly rushed.

In my years reviewing M&A transactions at ISS, I cannot recall a single instance where DCFs were at the center of the debate with investors. The conversations always came back to comparables, market benchmarks, and forward-looking financial expectations.

Final Thoughts

Ensuring that investors fully understand the strategic rationale behind the transaction, and how it fits into the company’s broader equity story, is key to securing support from ISS and shareholders. If the deal represents a pivot, the board must clearly articulate how that new direction creates greater value.

Equally important, how you get to a deal matters just as much as what the deal is. Boards that run a disciplined, transparent process, proactively manage conflicts, and communicate effectively with investors are far more likely to earn ISS support, even in contentious situations.

Finally, on valuation, it is not about intrinsic value models aiming to pinpoint a precise fair price. It is about relative fairness. Boards must be able to demonstrate that the offer is reasonable when compared to alternatives, peer transactions, and prevailing market expectations.

Contested M&A is never easy. But with governance discipline, investor alignment, and a compelling strategic narrative, companies can give themselves the best possible chance of success with ISS and with shareholders.