Mergers and acquisitions (M&A) are at the centre of corporate strategy today, and, while still cautious about the current economic environment, a large percentage of Canadian executives are hungry for M&A.
With most of the ingredients now in place for a favourable M&A environment in Canada – plentiful cash reserves, adequate credit availability and rising economic confidence – deal opportunities are increasing, and the quality of potential targets continues to improve. To make the most of these opportunities, companies need to undertake comprehensive pre- and post-transaction evaluations.
Do your homework
Leading practice places more and more emphasis on including non-financial issues in pre-transaction due diligence to develop a multifaceted understanding of value drivers and potential pitfalls in a deal before the contract is signed. While executives have always considered a wide range of factors in assessing transaction prospects and targets, today they are building more rigour and accountability into their analysis to create a comprehensive deal assessment and post-deal benefits realization framework.
Companies performing a comprehensive deal assessment must use all the tools and information available to them to weigh financial factors against strategic imperatives, value drivers and the degree of business and legal risk they’re willing to take. This includes analyzing a deal’s potential synergies. By considering post-deal issues of transition and integration that could increase cost and risk, companies can lay the groundwork for informed discussion and decision- making. Robust pre-transaction assessment provides the foundation for a strong and informed negotiation position and process as well.
Set expectations
Synergy analysis is a key element of a comprehensive deal assessment. While many companies explicitly pursue deals to realize improvements in performance, competitive advantage and cash flow, many are unable to pinpoint where, when and to what extent synergies should occur. By conducting a risk/return-focused synergy analysis in advance of closing a deal, companies can set their priorities for transaction integration.
While many companies engage in robust synergy planning to identify, quantify and prioritize areas where post-deal value will be created, improved or maintained, most lack a formal process for synergy realization once the transaction is completed. This is where leadership plays a key role.
Measure success
A post-transaction review process focuses on measuring the benefits obtained in relation to what was anticipated (and, to an extent, paid for in the purchase price). But determining which individuals should be responsible for this measurement, and on what basis they should measure the transaction, is an ongoing challenge for many companies. That’s why leading companies are adopting transaction management and measurement processes to ensure outcomes meet expectations. Before closing a transaction, companies should prepare a detailed plan and scorecard to measure their success in achieving benefits once the deal is done.
Transaction measurement is critical to determining future transaction success. It uses metrics that reflect a balanced, enterprise point of view. And aligned with corporate strategy and culture, transaction measurement builds accountability, links transaction results to compensation and rewards, and empowers transaction teams. But, above all, the best measurement systems promote focus and participation across the entire organization.
Reap the benefits
Negotiating and closing a corporate transaction requires vision, tenacity, focus and a professional evaluation process. Delivering the benefits requires similar characteristics and disciplines from a much broader group of people – a well-thought-out benefits realization program with clear accountabilities is essential to achieving sustainable transaction value.
To paraphrase Winston Churchill: closing the deal is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning. •
Vincent Bryant leads Ernst & Young’s Vancouver performance improvement advisory services team and teaches on the subjects of strategy execution and business transformation on the executive education program at the UBC Sauder School of Business in Vancouver. This column was co-written with Doug Johnson, a partner in Ernst & Young’s Transaction Advisory Services practice who leads its due diligence team.
