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Deloitte: Organizations Cite Room for Improvement on M&A Business Case Forecasting

Only 5 percent of respondents to a Deloitte survey of executives think their organization conducts forecasting at optimum level

NEW YORK, Oct. 22, 2013 – Nearly half of company executives (49 percent), who responded to a recent Deloitte survey, view their M&A business case forecasting abilities as “equal to” or “stronger” than their competitors, but recognize they still need to develop this capability to make better transaction decisions in the current deal market, according to a September 2013 Deloitte online poll.

While only 12 percent of responding executives viewed their organization’s forecasting abilities as “worse” than their peers, merely five percent identified as performing at the most advanced, “optimizing” level. Further, 10 percent of respondents identified their organization as performing at an “emerging” level and 20 percent indicated their organization was at a “developing” level.

“Honing business case forecasting at an organization can help corporate development executives manage uncertainty and achieve expected deal value,” explained David Williams, chief executive officer, Deloitte Financial Advisory Services LLP. “Improving the quality of deal forecasts involves a number of disciplines and making improvements is really as much an art as it is a science.”

Framing deals appears to be a significant challenge responding executives face in the business forecasting process, with 42 percent of such executives citing that “identifying the full set of value and risk drivers” is the hardest component of deal modeling. Other parts of the framing process, such as “using framing results to facilitate an honest, constructive conversation” (14 percent), to “guide modeling and data collection” (13 percent) and “assembling a broad, relevant set of stakeholders” (6 percent) were seen as less difficult to execute effectively.

“Good business forecasting is a team sport,” said Sara Elinson, principal, Deloitte Financial Advisory Services LLP. “To identify a robust set of risk and value drivers, the corporate development team should incorporate marketing, finance and operations executives.”

According to another recent Deloitte poll of North American CFOs, 51 percent of large organizations expect to pursue an M&A deal over the next 12 months. However, only approximately a fifth of this group stated that they see “good value” in the M&A marketplace currently, highlighting the need for diligent business case forecasting.1

The following chart outlines the level of maturity of M&A business forecasting abilities among respondents to the September 2013 online poll:

Level of Development
Percentage of Organizations at this Level
M&A Business Case Forecasting abilities
Level 5: Optimizing 5 percent Continuous improvement (playbook in the DNA), advanced risk methods, big data analytics, strategic/portfolio alignment metrics, better faster decisions
Level 4: Advancing 14 percent Process with metrics/incentives, interdependencies included, tracking actual vs. forecast, risk framing and probabilistic analysis, governance defined/enforced
Level 3: Committing 18 percent Consistent process (playbook), risk-aware, what-if scenario analysis, broad leadership support, transparency, achieving better results and confident
Level 2: Developing 20 percent Process focus begins, risk awareness developing, risk approaches available but not embedded, senior management sees value and sponsors change
Level 1: Emerging 10 percent Ad hoc, no defined process, limited awareness of risks, depends on heroics, entrepreneurs with one-off approaches, little communication or transparency

 

About the September 2013 online poll
More than 2,000 executives from industries including financial services; consumer and industrial products; technology, media and telecommunications; life sciences and health care; and energy and resources responded to polling questions during a September 2013 webcast, titled “M&A Business Case Forecasts: Managing Uncertainty and Maximizing Deal Value.” Click here to listen to the webcast.

1The Deloitte CFO Signals survey was conducted for the third quarter of 2013 between August 9, 2013 and August 23, 2013. Seventy-seven percent of the 124 CFO respondents were from organizations with more than $1 billion in annual revenues and 73 percent were from publicly-traded companies.

As used in this document, “Deloitte” means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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