A PwC and Mergermarket study of 600 global senior corporate executives has found that only 61 percent of buyers believe their last acquisition created value. However, acquirers that prioritise value creation from the onset of the deal outperform their industry benchmark by 14 percnet on average 24 months after completion, while divestors that prioritise value creation can outperform industry peers by 6 percent for the same period.
The Creating value beyond the deal report explores how corporations – both on the buyer and seller side - approach value creation throughout a deal. Using industry data, interviews with senior corporate executives, and academic support from the Cass Business School, the research team analysed eight years of transaction data to determine what made them so successful.
Although value creation strategies are becoming vital to long-term success, the study shows that 53 percent of acquirers are underperforming their industry peers, on average, over the 24 months following completion of their last deal based on total shareholder return (TSR). Similarly, 57 percent of divestors are underperforming their industry peers, on average, over the 24 months following completion of their last deal based on TSR.
In this regard, private businesses and family groups are rethinking how they can manage their portfolio of assets to maximise value over the longer term by improving transparency and intervening to drive better performance.
Karl Mackenzie, Value Creation in Deals Leader at PwC Middle East said: “Value cannot be created unless you have the right talent in place to create the transformation required. When performing transactions, clients are finding it hard to retain key executives. In addition understanding and respecting the culture of the target is important to ensure talent is retained and value is not lost post acquisition.”
Karl added: “Our clients in the Middle East are also finding their existing assets (across most sectors) are under pressure causing values to decline. This has resulted in clients rethinking their current asset strategies leading to restructuring and sale of non core asset sales.”
Three main considerations emerged from the research. First, Stay true to the strategic intent: Organisations should approach deals as part of a clear strategic vision and align deal activity to the long-term objectives for the business. 86 percent of buyers surveyed who say their latest acquisition created significant value also say it was part of a broader portfolio review rather than opportunistic.
Secondaly, be clear on all the elements of a comprehensive value creation plan – it should be a blueprint, not a checklist. Ensure a thorough and effective process for conducting the deal with the necessary diligence and rigour in the value creation planning process across all areas of the business. Consider how each of these support the business model, synergy delivery, operating model and technology plans. For acquisitions with significant value lost relative to purchase price: 79 percent didn’t have an integration strategy in place at signing, 70 percent didn’t have a synergy plan in place at signing, and 63 percent didn’t have a technology plan in place at signing.
Finally, pu culture at the heart of the deal: Talent management and human capital affect how businesses are able to deliver value pre- and post-deal. 82% of companies who say significant value was destroyed in their latest acquisition lost more than 10% of employees following the transaction.
The conversations with corporate executives show that companies that genuinely prioritise value creation early on – rather than assume it will happen as a natural consequence of the actions they take as the transaction proceeds – have a better track record of maximising value in a deal.
“It was interesting to see that only 34 percent of acquirers say value creation was a priority on Day One (deal closing) in their latest deal, though 66 percent said it should have been a priority,” says Malcolm Lloyd, Global Deals Leader. “This highlights the need to continually evaluate and refine the way value creation is approached within organisations.”
