October 18 - Deal-makers, executives, and objective market data agree that many deals fail to deliver expected synergies or value. Reasons vary widely. Sometimes companies enter a deal with unrealistic expectations. Other times complexity runs amok, and management of the deal-making process spirals beyond effective control. Success of defensively or competitively motivated acquisitions can be hard to measure. And, as veteran deal-makers know, a major transaction is a huge distraction. Unprepared, some companies let focus on integration drift in deference to critical day-to-day operations.
A 2006 KPMG/Stanford University M&A forum indicates that strategic players continue to refine their deal-making processes and review the roles and composition of their corporate development departments. Companies such as Hewlett-Packard, Oracle and Sun Microsystems are among those setting new measures to continually improve their transaction processes.
While deal success relies on many factors, research into the leading practices of corporate development groups indicates a strong correlation between a common set of core principles and the statistical probability of achieving transaction success.
Another recent KPMG survey of over 200 Fortune 500 and equivalent companies headquartered in North America and Europe finds those companies with the most successful deal records – those that meet or exceed 75% of their projected transaction synergies – share similar team compositions, deal-making structures and transaction processes. These processes are captured in the following guiding principles.
Balance Roles and Responsibility
Balance is elusive in any corporate endeavor, but nowhere more so than in the inherently disruptive deal management process. Companies that involve corporate development and business-unit personnel evenly during the deal process are 20 percent more likely to achieve deal success than those that involve either group disproportionately. Similarly, companies that retain corporate development involvement throughout the integration are more likely to meet milestones than those in which such personnel are less involved.
Involve Senior Staff
Today’s corporate development departments have a disproportionate balance of junior to senior staff. With deals reliant on timeliness and accuracy, inconsistent results born of inexperience can be costly. Survey data indicates that those companies involving a higher ratio of vice presidents and executives are 20 percent more likely to execute a successful transaction than those comprised largely of analysts and managers.
Leverage Transaction Expertise with Rotations
With M&A now a core process in virtually every industry, successful companies are nurturing a broad base of transaction experience. These companies recruit talent into their corporate development departments, and then rotate them over time into other functions. Management can then tap those employees’ transactions experience if a deal later arises that affects their respective business units. Survey results suggest such rotations help companies achieve greater transaction success.
Oversight Confers Advantage
With complexity rife in any major transaction, corporate development departments are adding structure and oversight to their deal-making processes. Leading companies are making greater use of hurdles and checkpoints to clarify and codify specific phases of a deal. Transaction committees that receive a steady level of corporate oversight are 40 percent more likely to be successful than those who receive too little monitoring or too much hand-holding.
Start Early
Leading corporate development groups recognize that transaction preparation begins very early. Once the strategy committee signs off on the company’s acquisition policies and objectives, the best start crafting internal decision-making documents. The benefit is that corporate development groups then have defined ‘fit characteristics’ with which to select and measure a given target. This focuses time and resources more effectively once a deal does come in the door.
Enlist Corporate Development Support in Estimating Deal Finances
It is important to maximize business unit involvement during the due diligence stage, but the corporate development department should play a central role in preparing financial estimates and forecasts. Companies that use the corporate development department to quantify projected synergies observe higher rates of deal success than those that rely solely on business units or other divisions.
Find the Experts
Where deals are in strategic areas or where the industry or subject matter is technical, leading companies go straight to the experts. Business unit and functional specialists internal to the company can help corporate development departments screen the acquisition target and evaluate the strength of the assets at stake. These experts can form part of the transaction team, and assist with integration planning. External advisors also play a role. Companies that engage consultants, accountants and bankers are more likely to achieve transaction success than those who rely solely on internal resources.
In the end, increased corporate development group involvement is a best practice statistically shown to improve the likelihood of a successful transaction. — Richard Hanley
Richard Hanley is the KPMG Transaction Services Co-Global Lead for the Electronics, Software and Services sector and head of KPMG’s Transaction Services Group in Silicon Valley.
No comments:
Post a Comment