M&A: Creating value beyond the deal – new report released!

Authors: Dr. Matthias Trummer MSc, Dr. Krzysztof Nowak, LL.M.; Mag. Katharina Seethaler, LL.M.

“Creating value beyond the deal M&A report” by PwC in collaboration with Mergermarket and Cass Business School combines global insights from a survey of over 600 global corporate executives, revealing how dealmakers effectively create significant value via M&A and generate maximum returns.

The research shows inter alia that companies prioritising value creation have the potential to outperform peers on total shareholder return by as much as 14% on average 24 months after completion of their deal.

Buyer’s and seller’s guide to value creation

The report shows that companies need to observe all aspects of their value creation plan and embed this in a long-term strategy. Accordingly, the following aspects should be kept in mind by buyers while conducting M&A deals:

  1. Start with a clear M&A strategy
  2. Focus on value creation from the start
  3. Do comprehensive due diligence
  4. Be a ready buyer
  5. Devote more resource to integration
  6. Focus on people
  7. Keep tax and legal engaged in planning

Additionally, the report demonstrates that divestments, like acquisitions, still have the potential to create value provided that the right strategy, planning and investment is in place. In this respect, sellers shall consider the following aspects:

  1. Develop a “divestment playbook”
  2. Don’t leave due diligence to the buyers
  3. Explore the art of the possible
  4. There is no substitute for experience
  5. Make the most of your people
  6. Address legal complexity

Clear M&A strategy

If buyers were to take just one point from the report, it would be this: have a clear M&A strategy!

The most successful dealmakers ensure their M&A strategy sits at the heart of their business strategy. This is reinforced by the following survey’s findings:

  • 86% of buyers surveyed who say their latest acquisition created significant value also say it was part of a broader portfolio strategy rather than opportunistic.
  • 93% of organisations who reported significant value creation invested 6% or more of their total deal value in integration.
  • 83% of respondents say they need to improve their value creation plans.
  • 98% of companies that say their last acquisition created significant value also say they have a formal value creation methodology.
  • 68% believe they can improve their target selection to better meet strategic needs. Investing in integration.

Comprehensive due diligence

The survey’s findings shows that 80% of respondents were taught by their last transaction that they need to do a better job regarding due diligence to validate their pre-deal hypothesis and assess whether a potential acquisition will help them pursue strategic priorities. Given the significant pace of change across all industries, technology due diligence has become a central focus. New technology-led commercial opportunities, such as monetising data, the creation of new services and driving cost efficiencies, will certainly continue to increase in importance.

Keeping tax and legal engaged in planning

Buyers need the right tax strategy and doing a deal is a one-off opportunity to revisit tax structures completely. Organisations might miss this opportunity as well as the value that can be created thereby, being too busy doing the deal. Similarly, not properly addressing legal issues can hinder value creation. For example, buying a business from its long-term owner involves buying its corporate structure. There may be a chain of holding companies or operations split across different jurisdictions. Once the business is acquired, it could be desired to transfer operations in or out of those subsidiaries and/or shut some subsidiaries down. There may be dividend blocks within the structure that prevent capital from being extracted or moved around the group. All of these may require significant and careful consideration to realise whatever gains a buyer expects to make.

Conclusion

In conclusion, the report identifies three steps to creating value beyond the deal, namely:

  1. Stay true to the strategic intent
  2. Be clear on all the elements of a comprehensive value creation plan – it should be a blueprint, not a checklist
  3. Put culture at the heart

 

Experts from our PwC Legal team can support you in pursuing your next M&A deal. We develop tailor-made strategies and solutions for your individual needs. In particular, our services include

  • structuring of M&A transactions,
  • creating and negotiating the entire transaction documentation,
  • signing and closing aupport, as well as
  • legal support in the implementation of post-closing measures

Further information can be found at www.pwclegal.at.

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