Hard Times Spur Better Deals

M&A transactions in 2007-2009 produced more value: KPMG

The financial crisis created a tough environment for businesses. But a KPMG survey shows global mergers and acquisitions executed between January 2007 and July 2009 created more value for companies than did transactions over the previous few years.

The survey shows that 31% of the deals transacted in the 2007-2009 period created value, up from 27% in the previous few years. That seems to indicate that the softer prices and tighter financing wrought by the credit crisis and global recession prompted companies to scrutinize potential deals thoroughly and pick their targets carefully.

“This survey did suggest that we are seeing deals being more successful at a statistically meaningful rate than in prior years,” says Steve Miller, managing director and U.S. lead of KPMG’s integration and separation services practice. Increased professionalization among deal makers is another reason, he adds.

Can companies continue that success rate as deal activity picks up? The KPMG survey suggests that some aspects of transactions still get short shrift. For example, while 81% of companies say they perform due diligence on the financial aspects of a deal, just 45% do strategic due diligence, just 42% look at IT and only 38% look at HR aspects.

Only 22% of companies say they do a great deal of analysis on possible synergies before a deal is struck, while 44% say they do very little or no analysis of synergies. Companies particularly neglect revenue synergies, such as the possibility of cross-selling to the customers of the acquired entity.

“You’re not just acquiring the base revenue, you’re acquiring the base revenue with the expectation of executing using a revenue synergy on top of it,” Miller says, adding that realizing such revenue synergies in addition to cutting costs can dramatically impact the bottom line.

From 2007 to 2009, the survey shows a shift toward domestic deals, but KPMG predicts that companies in mature markets like the U.S. that are hungry for growth now focus on targets in emerging markets.

Miller says international deals are harder for companies to execute. “The soft stuff is generally what makes a transaction successful. That’s hard enough to do in a domestic transaction,” he says. “But sending consistent messages and managing change over disparate cultures ramps up the complexity level many fold.”

 

 

To read about the importance of correctly assessing a company’s intangible assets in the success of transactions, see Getting a Grip on Intangibles.

 

 

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