Global M&A volumes may be down but transactions are commanding premium pricing, making successful value creation post-deal critical.
Global M&A is down 11% compared to last year, however beneath the surface the picture is rosier: 22% of all investments were private equity led (the highest since 2006), there were 25 take private deals (the highest since 2007) and there were 31 corporate mega deals (£10 billion or more) in the first nine months of this year (the highest since 2008).
At the launch of our Corporate M&A community, we held panel and roundtable discussions with M&A stakeholders driving transactions in their organisations to discuss how they ensure that their deals align to the right corporate strategy, and how they maximise value creation post-deal. This is paramount in an M&A environment where deals are increasingly complex and highly competitive processes inflate valuations. Securing value post-deal has never been more important.
As part of our expert panel, adding or enhancing capability in businesses was cited as one of the key drivers of M&A. Meanwhile, successful integration to deliver deal value was identified as the most common challenge, with deal fatigue (for those transactions that take longer to get over the line) and the 'people' dimension (really getting to know and manage the people and culture you have acquired) cited as key reasons why it usually takes longer than planned to deliver the benefits identified pre-deal.
The phenomenon of the once ‘new and shiny’ acquisition suffering from poor performance, perhaps after an initial post-deal surge, was something that many attendees could also relate to.
The importance of culture, people and incentivisation
Preserving an innovative culture, and allowing it to flourish when a smaller, more entrepreneurial business is acquired by a much larger group, was also cited as a key challenge experienced by many. Success comes from integrating the business's support structures behind the scenes, whilst allowing an innovative culture to flourish long-term with adequate autonomy and support.
The panel were asked how they are anticipating and meeting integration challenges, and what they were doing pre-deal to increase their chance of success. The assessment from senior management, including from founders and owners, was highlighted as critical in determining the long-term success of a deal. Formal management due diligence has its place, especially in the largest cross border deals, but more often views are formed by engaging informally with target management as much as possible pre-deal, using a range of functional lenses to test as broadly as possible.
There was recognition of the importance of having the right ‘earn out’ structure for driving the right behaviour in target management. The panel felt they needed to be aligned with the transaction's goals, otherwise deal value can be undermined.
Underestimate technology risk at your peril
Underestimating the impact and complexity of technology integration, particularly in businesses where technology ‘is' the business, was also highlighted as a key challenge. To mitigate this risk, the right specialists within the business should get involved in the deal as early possible during due diligence, and the same specialists should be ring-fenced to help drive operational changes that will protect and unlock value post-deal.
These are just some of the many factors that determine whether the deal you strike will ultimately deliver the value you need to make it a success in the long-term. If you would like to become part of our Corporate M&A community, participate in future events and hear more insights from your peers, then please request to join our LinkedIn group.
Whether acquiring or divesting, we can help M&A leaders realise deal potential by better understanding and mitigating the risks, and by making the most of the opportunities each transaction brings.