M&A Deals: Do You Have the Horses?
Mergers and acquisitions (M&A) are cranking back up- even as the pressure to preserve capital and minimize costs in the wake of the downturn remains steady. As a result, the old discussion of whether it’s worth bringing in outside help is picking up steam.
Here’s the debate:
You can do it.
Go it alone – outside help is an unnecessary luxury
|Managing M&A is tough, but it’s not rocket science. It just takes good execution. We know our business better than anybody.||True enough, but how well do you know the target’s business? This isn’t the time to risk a flawed – or slow – execution. Some outside help, focused on targeted trouble spots, will increase your chances of getting the outcomes you want and avoid predictable pitfalls.|
|This deal is already costing us a lot of money. We can’t afford to add even another 1 percent to the cost of the deal.||Don’t lose sight of the big picture. Because deal value erodes rapidly, you may not realize the expected value of the transaction if you don’t execute effectively and quickly. You’re losing way more value than whatever it would have cost for some help.|
|This is really about accountability. If we don’t run this ourselves, how will we own its success in the long term?||Decisions definitely need to be made by your people. Help them take charge and own their decisions by giving them some leverage – especially in due diligence, tax strategy, integration execution and transaction execution.|
Bring in some help.
Just be smart about how you deploy them.
|Outside consultants and attorneys have been through this many times before. They can see the issues coming before there are problems.||Our people have done this more times than any outside “experts” we would bring on. We bring our own tools, methods and processes to the table. Top that.|
|This isn’t about bringing on an army of consultants to swarm on every little thing. It’s about using specialists in very specific roles to complement what you’re already doing. That’s valuable.||We’ll bring in a consultant only if it becomes clear that we’re coming up short somewhere. Otherwise, we’ve got this.|
|People on your team are already so invested in making the deal happen, or so entrenched in the current operating model, that it can cloud their objectivity. You need an objective viewpoint and a window into external leading practices to make this work right.||Consultants don’t know enough about our business and history to offer an objective opinion that I can trust. I can see through our own team’s biases.|
Marco Sguazzin, Principal, M&A Consultative Services, Deloitte Consulting LLP
Admit it. The only reason you clicked on this debate was to see which flavor of self-serving justification we could offer up for hiring us. But this isn’t about us. This is about how you and your team can increase your chances of doing deals that work–turning over all the stones that matter, crossing the T’s, dotting the I’s. That said, our view on how corporate M&A teams and their outside support can most effectively work together may surprise you.
The days of hiring an army of consultants to take over M&A are long gone, whether the resources are there or not. Today it’s all about using limited resources wisely. And that means engaging outside advisors in a focused and limited way, to support the most important decisions your own team is making day in and day out.
Looking broadly across the hundreds of deals I’ve been involved in, there are four areas where clients tend to cut important corners. Sometimes it’s because they simply don’t have the in-house resources and sometimes because they really do have blind spots. Here are a few places where in-house teams too often need help:
- Driving execution from the center. In M&A, most big decisions are cross-functional, complex and not easily addressed in the same ways that most “normal” challenges are resolved.
- Measuring and realizing value. In most deals, value doesn’t just happen as the pieces fall into place, whether through revenue synergy, cost synergy, product portfolio rationalization, whatever. It happens because leaders are finding, quantifying, realizing and measuring value at every step.
- Doubling down on due diligence. Seamless, broad due diligence efforts that account for the challenges of integration have been shown to reduce risk, accelerate integration and align executive teams throughout the process.
- Formalizing teams and dedicating resources. A smaller, focused team empowered to drive important decisions almost always wins out over a large number of employees contributing on a part-time basis.
Here’s the bottom line. Take an honest look at your deal and integration team and ask yourself where you might not have the horses to deliver quickly. Look especially at areas where you think there’s value to be gained, or where you’re making assumptions that could erode value if you’re wrong. Do what you can with your corporate team and bring in focused support where you don’t have the experience, time, patience, objectivity or track to get it done quickly in-house.
A Financial Advisory Perspective
Chris Ruggeri, Principal, Advisory Services, Deloitte Financial Advisory Services LLP
As you can imagine, I’ve heard my share of arguments against using outside advisors on deals. They’re too expensive. We know more than they do. They don’t know our company. We can save money doing it ourselves. Frankly, each of these arguments can have its merits. But, this last point is the one that always leaves me scratching my head, wondering what I’m missing.
It’s not unusual for large companies to deploy 50 to 100 people on a deal – sometimes regardless of deal size. These people are usually pulled from their daily responsibilities and asked to “moonlight” on the deal. Many are deal inexperienced, overwhelmed and overworked and not given the tools, training and resources they need to be effective. And, they definitely come at a cost. Just because they’re employees doesn’t mean they’re free. This is one of the single greatest (and most stubborn) illusions about the cost of M&A deals. In a recent Deloitte survey, corporate development executives told us that, on average, they incur internal resource costs of one percent - three percent of deal value on any given deal. This is real money. And this cost isn’t even risk adjusted to reflect the quality, experience or competence of the team – not to mention the opportunity cost of executive and staff time.
The first step in deciding whether to go it alone or engage advisors is to critically assess the requirements of the transaction, including its strategic importance, the competitiveness of the process, timing and risk profile. Then you need to honestly map this view against all the competencies and capabilities necessary to execute, troubleshoot and reach key decision points. If everything can be addressed with internal resources, at lowest cost, great – go it alone. If there are gaps, be honest about it and find someone to help fill them. That doesn’t always mean hiring an advisor to assume primary responsibility for the deal. It can mean using advisors in a very limited and focused way to enhance the potential to realize the expected benefits of the deal. The key is finding an advisor that can help you think through the strategic objectives of the transaction and risk profile and then find ways to add value and complement the capabilities of your deal team. You would never do a valuation without risk-adjusting the cash flows. The same applies to your deal team.
A Due Diligence Perspective
Garrett Herbert, Partner, M&A Transaction Services, Deloitte & Touche LLP
Most internal M&A teams leap at the opportunity to work on due diligence, with good reason. It’s a break from routine, it’s important and it can actually be fun. Until you run into some common pitfalls, that is. In my work with companies in the due diligence phase of a transaction, there are three main reasons why they decide to bring in external help:
- Geography. To get a global deal done, you need to be able to speak the language, know the customs and anticipate cultural issues. Knowing when to sit, where to sit, whom to address and how to express yourself goes a long way when it comes to building rapport with the target management – and getting diligence completed efficiently and accurately.
- Knowledge. No matter how good your team is, they don’t know what they don’t know. These days, highly specialized areas are the ones that can trip up even the strongest due diligence efforts – foreign generally accepted accounting principles (GAAP), obscure accounting rules, sales and use taxes and complex transactions can all present major obstacles. Outside advisors can help extend your team and offer access to a wealth of technical and functional know-how.
- Bandwidth. Except in the case of a handful of serial dealmakers, most companies rely on internal teams to serve double duty when it comes to due diligence. Usually, something has to give. That’s why some extra muscle can be very important in the long run.
When it comes to due diligence, we’ve found the best model is usually one of hands-on collaboration. Nobody knows your business better than you do, but most internal teams aren’t fully prepared for the unexpected twists and turns of a big due diligence effort, either. Working together offers the best of both worlds.
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