A Successful M&A Deal: A Formula For Maximizing Value

Getting the most out of M&A deals is the result of serious strategic planning. All work must be executed within the strict framework of a company’s business strategy – for both buyers and sellers. We shall briefly examine the following steps that impact the efficiency and value creation of the transaction:

1.  Strategic analysis.

The analysis provides management and the board of directors of the acquirer with information that allows them to assess the comparative advantages of a cash proposal compared to an exchange-of-shares offer. Based on the analysis, a decision is made about the candidate, and an effective strategy for negotiating an acquisition is developed.

2.  Value creation.

Value creation should be the priority of the deal. There are ways to increase the value of companies through mergers and acquisitions:

• Follow strategy discipline. Companies must take the right action at the right time following their strategies.
• Conduct a due diligence and synergy estimation. Thorough due diligence is essential for further strategic planning.
• Be a prepared buyer. “Buyers should have a comprehensive plan for adding value as early as 30 days before signing a deal so that due diligence can test and confirm key assumptions and then proceed with the transaction without delay,” says Hayn Marais, Practice Leader, Value Creation Services, Europe, Middle East, and Africa, PwC UK.
• Conduct effective integration. First, a well-prepared strategy plays a significant role in integration, including planning time and allocating staff resources for its implementation. Second, the process will require the company to invest. Respondents who spent less than 5% of the transaction value on integration noted a loss of value. Conversely, more than two-thirds of companies that spent between 11 and 30% increased value.
• Unify the corporate culture. A message that conveys comfort to the deal target’s employees, delivered early on, will lay an excellent foundation for dealing with cultural issues later on. And once the agreement is signed, direct communication with employees should be a priority. It’s especially important to understand what motivates them and what incentive to give them to stay.
• Involve tax and legal experts. When setting up a major deal, companies may not pay enough attention to tax issues and subsequently miss out on the benefits. The truth is, that a deal can significantly change the tax structure and create new beneficial regulations.

PwC consulting specialists conducted a survey “Creating value beyond the deal” to uncover how senior executives create value for M&A. 600 senior executives from a variety of industries and countries who had completed at least one significant acquisition and divestiture transaction in the past three years participated in the survey.  The results were measured using a Total Shareholder Return (TSR) indicator over two periods: one month before the deal announcement and 12 and 24 months after the deal was completed. The majority of respondents (66%) agreed that value creation should be the priority. However, more than half of the acquisitions performed below the industry average in the two years following the deal. Of the participants, 65% cited cultural issues as a barrier to value creation, and “for acquisitions with a significant further loss in value relative to the purchase price,” all respondents said that cultural issues had impeded the realization of the intended benefits. According to the report, 86% of respondents with significant post-transaction value gains conducted a strategic analysis of their portfolio beforehand. (The full report of the study is available on PwC’s website).