Dealmakers Under Pressure for More
February 18, 2019
PwC and Mergermarket study of 600 global senior corporate executives has
found that only 61% of buyers believe their last acquisition created
value. However, acquirers that prioritise value creation from the onset
of the deal outperform their industry benchmark by 14% on average 24
months after completion, while divestors that prioritise value creation
can outperform industry peers by 6% for the same period.
Although value creation strategies are becoming vital to long-term
success, the study shows that 53% of acquirers are underperforming their
industry peers, on average, over the 24 months following completion of
their last deal based on total shareholder return (TSR). Similarly, 57%
of divestors are underperforming their industry peers, on average, over
the 24 months following completion of their last deal based on TSR.
Despite these figures indicating that many deals fail to realise the
value that they intended to generate, those deals that prioritise value
creation can generate a significant amount of value. So what exactly are
the factors responsible for creating value in deals?
The Creating value beyond the deal report explores how corporations –
both on the buyer and seller side - approach value creation throughout a
deal. Using industry data, interviews with senior corporate executives,
and academic support from the Cass Business School, the research team
analysed eight years of transaction data to determine what made them so
Malcolm Lloyd, Global Deals Leader, PwC comments: “As dealmakers are
coming under increasing pressure to deliver more value from their M&A
activity, companies that establish rigorous criteria for value creation
early on in the buying or selling process are best positioned to
maximise the returns from the transaction.”
Three main considerations emerged from the research:
Stay true to the strategic intent:
Organisations should approach deals as part of a clear strategic vision
and align deal activity to the long-term objectives for the business.
86% of buyers surveyed who say their latest acquisition created
significant value also say it was part of a broader portfolio review
rather than opportunistic.
Be clear on all the elements of a comprehensive value creation plan – it
should be a blueprint, not a checklist. Ensure a thorough and effective
process for conducting the deal with the necessary diligence and rigour
in the value creation planning process across all areas of the business.
Consider how each of these support the business model, synergy delivery,
operating model and technology plans. For acquisitions with significant
value lost relative to purchase price: 79% didn’t have an integration
strategy in place at signing, 70% didn’t have a synergy plan in place at
signing, and 63% didn’t have a technology plan in place at signing.
Put culture at the heart of the deal: Talent management and human
capital affect how businesses are able to deliver value pre- and
post-deal. 82% of companies who say significant value was destroyed in
their latest acquisition lost more than 10% of employees following the
The conversations with corporate
executives show that companies that genuinely prioritise value creation
early on – rather than assume it will happen as a natural consequence of
the actions they take as the transaction proceeds – have a better track
record of maximising value in a deal.
was interesting to see that only 34% of acquirers say value creation was
a priority on Day One (deal closing) in their latest deal, though 66%
said it should have been a priority,” says Malcolm Lloyd. “This
highlights the need to continually evaluate and refine the way value
creation is approached within organisations.”
John West, Managing Editor, EMEA, Mergermarket, comments: “This
fascinating research shows just how often value is left on the table
following M&A – and how frequently dealmakers don’t even realise it.
Drafting value creation plans cannot just be a box to tick to get the
deal over the line. There needs to be execution post-close.”
Dr Valeriya Vitkova, Cass Business School, comments: “Too often in the
past phrases like ‘strategic fit’ and ‘cultural match’ have dominated
justifications given for acquisitions, without any ‘hard’ evidence
provided for these claims. The analysis presented in this report
provides excellent insights into what really matters in deals and
perhaps as importantly, what doesn’t matter.”