This year has seen a resurgence in deal–making activity around the world. This resurgence is being fueled by cheap debt, increased boardroom confidence and the return of growth after the 2008 financial crisis. With this growth in activity comes increased pressure to ensure that the deals completed generate the maximum value as competition and pricing are running high. With the question of what separates the deals that capture value to the deals that do not, Crowe Horwath LLP and Mergermarket teamed to develop a recent study in which corporate deal-makers divulged important differences between successful and unsuccessful transactions – Steering Successful Growth: Value Capture in M&A (the Report). The partners interviewed over 100 corporate executives about their most recent deal activity – looking at what the acquiring companies set out to achieve, the processes they used, and whether they deemed the deals successful or not in terms of capturing value.

Key findings include:

  • The successful transaction professionals succeed in prioritizing resources and effort around highest value-capture initiatives 91% while their less successful peers only achieved this 67% of the time.
  • Half of successful deal-makers used an integration scorecard compared to only 37% of unsuccessful ones.
  • Only 11% of successful deals were cross-border, compared with 33% of unsuccessful deals.
  • Proper focus throughout the M&A transaction value chain can help companies achieve greater acquisition success.

With the last finding, the Report goes into depth on how the deal process works, specifically, how it should work to capture the best value. The Report emphasizes that looking at the deal process as a “value chain” can help deal teams properly understand how each stage of an acquisition functions and is connected. The Report states

the M&A transaction value chain model not only makes the steps of the deal explicit and clear – but it also speaks to the fact that the ultimate value of the deal can be either supported or undermined at each stage.

The M&A transaction value chain is broken down into the following stages:

  • M&A Strategy
  • Due Diligence
  • Valuation
  • Integration Planning
  • Post-Close Execution
  • Incremental Optimization
  • Capability Upgrade

In conjunction with the M&A transaction value chain, the Report identifies seven aspects of any merger or acquisition that they view as constituting the foundation of good deal execution which should be applied endlessly during all phases of the value chain. The Report refers to these aspects as the seven pillars of M&A success being: structure, governance, and accountability; strategic clarity; execution efficiency; operating continuity; synergy capture; people/culture management; and scalable resources.

With the rise in deal volumes, the availability of cheap debt companies are feverishly seeking and striking deals, however, what must be kept in mind is that there is a high expectation that these deals drive value for shareholders. Doing this requires groundwork and planning which comes in many forms. The deal rationale needs to be considered carefully, procedures placed to maximize the efficiency of the deal process, and deal-makers need to be engaged and obtain the appropriate assistance throughout all of the stages of the M&A transaction value chain.