From strategy to implementation, there is significant opportunity to capture more value from M&A deals—according to a recent survey conducted by Grant Thornton LLP. The survey revealed that only 14 percent of all respondents feel that deals exceed their initial expectations for income or rate of return.
According to the 2018 Deal Value Curve Study, which surveyed more than 400 CEOs, managing directors, CFOs and other high-level executives, only 37 percent of respondents strongly agree that efficient M&A is a wellunderstood core competency of their company.
“With valuations near all-time highs and a high degree of competition for deals, it’s more important than ever to take a holistic approach to diligence—including financial, operational and cultural diligence,” said Jim Peko, national managing principal of Transaction Services at Grant Thornton. “At the end of the day, better diligence makes it easier to drive transaction value.”
CLARITY FROM THE START
The pressure to grow, availability of capital and the constant exposure to “pitched” deals make it very easy for companies to fall into a frantic, reactive position rather than remaining focused and disciplined.
The survey found that thoroughly scrutinizing the details of transactions, well before the transaction begins and well beyond typical tax and earnings due diligence, helps highlight the precise drivers of value and leads to a much greater chance of success.
However, only 38 percent of respondents indicated they have very clearly communicated which acquisition targets they should pursue, and only 33 percent were very clear on what they should be paying.
“We’ve found that if you are proactive in your M&A approach, you can achieve higher conversion rates and deals turn out better across the board. But being proactive starts with being clear—that means translating your larger corporate strategy into a defined M&A strategy,” said Ed Kleinguetl, a Transaction Services partner at Grant Thornton.
“The best approach is multi-dimensional, encompassing strategic clarity, target focus, diligence rigor, process discipline and execution accountability,” added Kleinguetl.
STRATEGY WITHIN A STRATEGY
The initial articulation of objectives when it comes to deal making is imperative. Still, only 30 percent of respondents indicated they were operating with a clear, well understood M&A strategy. The absence of this can inevitably cause inefficiencies that appear throughout the process, leaking value at every stage.
“We find that when due diligence is broken down into specific areas of focus, it becomes abundantly clear that operational and cultural components of deals are receiving insufficient attention,” said Chris Nemeth, a Transaction Services principal at Grant Thornton.