As Theresa-Marie Stodell talked about in our recent article on M&A in the food and drink sector, 2012 has seen a steady stream of deals in the M&A market in the food and drink sector despite turbulent market conditions. At Eversheds we are seeing continued evidence of this – we recently advised Dairy Crest when they sold their St Hubert spreads business to Montagu Private Equity.
While the deals are still flowing in the food and drink sector, The Eversheds M&A Blueprint: inception to integration has found that many global businesses are not realising the full potential of cross-border mergers and acquisitions (M&A) as a means of driving growth due to weaknesses in the deal process.
These are the findings of our new global study, The M&A Blueprint: From Inception to Integration. Published this week, it shows that deal teams need a more holistic approach and stronger connections between the planning, completion and post-deal integration phases.
The report is the result of an in-depth study of 400 businesses from 41 different countries, which have done at least one cross-border M&A deal worth over $100 million in the past three years. It shows that nearly half (43%) of businesses believe that the most common cause for deals not successfully achieving their goals is due to a failure to address post deal integration from the early stages of deal due diligence.
The report also shows that legal risk is an increasingly important consideration in the assessment of potential deals. General Counsel provide essential input at this stage and more than half (59%) of all respondents said they had spotted potentially damaging issues early enough to caution management about proceeding with the deal.
While we understand that the current economic climate has made the business of doing deals much tougher, company boards are under pressure to secure growth and M&A is an essential business tool for achieving this.
The M&A Blueprint: From Inception to Integration report shows that key to the success of a cross-border deal is the presence of a core team who can provide the ‘connective tissue’ to link all the phases together, taking the deal from the inception stage through to post-completion integration. It is clear that businesses need to start joining the dots between the different stages of the deal cycle to move the focus from just simply ‘doing the deal’ to thinking about life for the business beyond the deal.
More than three quarters of Eversheds’ deal activity is cross border and we always advise our clients to adopt a project management approach for the life cycle of the deal. This helps them to focus on post-deal integration – and achieving maximum value from the deal – from the outset.
The report also shows that many businesses know they can do better and want to see best practice in action on each and every transaction. So, with the publication of this report we produced the blueprint for success in cross-border deals as identified by deal-makers themselves :-
- From the start – 38% of in-house legal teams felt integration did not go as expected because they were not involved at the inception stage.
- Early warning – 59% of all respondents said they had spotted potentially damaging issues early enough to advise that a deal should not go ahead.
Planning and due diligence.
- The crucial stage – 43% said the most common cause of the failure to realise value in transactions was down to avoidable errors in the due diligence and planning phase.
- Joined up thinking – 70% felt that linking due diligence and integration planning together would help to improve the deal process.
- What matters most – The reasons General Counsel would advise not to proceed with a deal were illegality/regulatory (45%), e.g. bribery, competition and antitrust, and commercial concerns (45%), e.g. price and valuation, litigation risk, integration costs.
- A false saving? – 82% did not use external lawyers during integration, although they were acknowledged to add value. The main reason being cost.
- Avoid mismatches – 26% felt that the failure to realise value in a recent cross-border M&A deal was due to a misalignment between legal dealmakers and the day to day business team.
In addition, we are developing a benchmarking tool to help you and your organisation benchmark yourselves against other organisations in your sector or region – we will be launching this very soon and will post a link on the blog as soon as it goes live.