How to Succeed in the Era of Increasingly Complex M&A Transactions

Transactions are becoming increasingly complex as companies increasingly resort to mergers and acquisitions (M&A) to pursue ambitious strategic objectives. More and more companies are turning to deal brokering to gain capabilities and respond quickly to new challenges, from developing new business models to digitizing operations.

The market has also become extremely competitive. M&A valuations continue to rise and the pool of attractive targets is shrinking in some sectors. All of these changes require traders to maintain an unwavering focus on strategic value throughout the deal cycle.

Complexity manifests itself in two ways: the degree of difficulty created by specific complexities and the way in which the complexities of a transaction escalate. A complex transaction may require the buyer to step out of their comfort zone to enter a new line of business or radically change their operating model. It is also likely to involve additional complexities, such as the need for business process transformation or new tax structures.

Each layer of complexity increases risk and creates additional headwinds against transaction success. Unforeseen complexities can delay execution, sap momentum and delay capturing synergies. But the market rewards acquirers for realized, not anticipated, synergies, and often punishes acquirers who fail to meet expectations.

In this environment, M&A leaders are accelerating value creation, taking on more operational risk, and looking for extraordinary synergies that strengthen relationships and partnerships. They must also consider factors such as managing talent in a tight labor market or meeting investors’ environmental, social and governance (ESG) requirements.

Ever-increasing complexities, on top of traditional challenges such as regulatory review and cross-border shopping execution, require improved ways of thinking and shifts in mindsets, ambition and execution. To win in today’s unusually complex market, traders must develop and maintain a greater strategic focus on value while adapting their approach to the specifics of the transaction.

The fundamental step is to clearly define from the outset the strategic value that the transaction is intended to capture and the value creation mechanisms that will deliver it. The details may change along the way, but the overall strategic goal is always there: the North Star that guides every decision throughout the deal lifecycle. The focus on value creation mechanisms will drive the approach to due diligence, Day 1 preparations, talent engagement and post-trade actions in light of an evolving market landscape.

Businesses can take five practical steps to improve their chances of success when undertaking a complex transaction:

  1. Make strategic value your North Star

The ultimate benefit of complex transactions is often strategic value, that is, new opportunities or new ways of doing business that create long-term value. These agreements transcend traditional synergies. The strategic objective of the transaction must be clearly defined, widely supported and pursued methodically and relentlessly.

  1. Play offensive to win during the diligence

Diligence should not be a “tick the box” exercise to validate basic assumptions. This is your opportunity to identify even greater sources of value and explore the art of what is possible with target management. This is also an opportunity to ensure that your own organization is clearly aligned with key value drivers.

  1. Start running before day 1

Complex transactions require a different approach to Day 1 preparation, one with increased focus, intensity and speed. Savvy buyers use the signing window to close to protect business momentum, find and mitigate blind spots, continue to seek even higher synergies, and expedite bespoke integration planning.

  1. Adopt a people strategy for the times

More than ever, the value of a target resides in the skills, energy and culture of its employees. Tight and changing labor markets increase the risk of losing talent and reduce the likelihood of finding replacements quickly. To make complex deals work, you need a human resources strategy that fits the realities of today’s talent.

  1. Think continuous value creation

Buyers set synergy goals up front, but they shouldn’t stop there. Be alert to new opportunities as they arise and prepare to evolve as markets, leadership and strategies evolve.

The winning formula for success in complex transactions is deceptively simple: launch a quest for strategic value, relentlessly pursue synergies, and prevent value leakage through a more robust execution model.

Learn more in KPMG’s latest report, Navigating Complex M&As: How to Win in the Age of Complex Transactions.

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