Deals Strategy and Operations: Where a typical day is anything but typical

So what’s on DS&O’s radar for the year ahead? 

1. Transformative M&A 

It can take a significant amount of time and resources to rewrite or establish new business models. That’s when companies can turn to transformational deals. 

Transformational deals (which include acquisitions, joint ventures, spinoffs and divestitures) can open up access to new capabilities and talent. Furthermore, they can enable greater speed to market; assuming a clear strategy upfront and a well-defined and executed integration strategy to follow. 

Is your business ready? 

Despite all the potential benefits, M&A doesn’t always create as much value as intended. PwC research has shown that 53% of corporate acquirers underperformed their industry peers. There are several reasons for this, including mismatched company cultures, technology troubles and losing key talent. Another contributor is a failure to achieve go-to-market goals. 

So how do companies know if they are ready for a transformative deal? A few key questions need to be answered: 

• Is your company’s growth lagging compared to your industry?  

• Does your strategic planning indicate that current capabilities are not fit to drive continued growth?  

• Are new entrants able to grow market share using a different business model?

Any of the above situations could indicate the need for a transformative deal. However, you must also ensure you’re ready to do the transaction. Consider: 

• Do you have the internal talent to execute?  

• Is your organisation a platform that can be built upon?  

• Have you incorporated the necessary lessons from previous transactions? 

• Do you have the capital to execute?

2.  Value realisation in an inflationary environment

Rising inflation has rightly commanded a lot of headlines and attention recently. As inflation threatens company earnings and erodes shareholder returns in real terms, dealmakers need to think afresh about value creation. The tried and trusted methods of yesterday may require a rethink. To thrive in this new environment, business owners and leaders should consider using real-time analytics to assess potential impacts of inflation on a company’s operations and growth outlook. 

Coupled with potential supply chain risk, inflation is now critical to shareholder value preservation and creation. Key considerations for dealmakers include:  

• Keep value at the centre of the equation: Re-baselining the value creation plan gives shareholders and management renewed focus on tangible goals that are realistic in emerging circumstances. Staying true to the original value creation case will secure greater buy-in and clearer accountability.

• Focus on what can be controlled, and quickly: Use a driver-based model to identify levers that are controllable in the short, medium and long term. Where financial performance is truly challenged (e.g. turnaround scenarios), deploy rapid cost and cash management tactics.

• Rapidly identify material exposures in the supply chain: A supply chain challenge typically amplifies as it passes up the chain (e.g. an increase in fuel prices adds cost at every level of the chain). Understanding the Tier 2+ supply base, and identifying exposures from end-to-end gives greater power to determine what costs can and can’t be addressed, and where joint action might benefit everyone.

• Provide transparency and negotiate ‘pass through’: Provide transparency around challenges both upstream to suppliers, and downstream to customers, where appropriate. Seek to share value and risk throughout the value chain.

• Leverage the power of the portfolio: Use opportunities to scale where possible (e.g. through leveraged procurement programs, directed buys, collaboration opportunities and knowledge sharing).

3. Putting people at the heart of your deals

With the market still straining under skills shortages, and with clients increasingly aware of the importance of human resources in transactions, organisations can’t afford to lose quality staff during the M&A process. In fact, PwC’s research shows that 82% of transactions have had significant value destroyed in their latest acquisition where they’ve lost more than 10% of staff. Our aim is to support our clients to make the best possible M&A decisions, and right now that includes a firm focus on people. My biggest tip is to think about culture early. Prior to transaction, ask these critical questions: 

1. What are the unique cultural traits of the organisation that drive its success? How do you ensure you leverage these strengths through the deal process and preserve them upon completion of the deal?
   

2. What is the capability of the management team? More broadly, does the workforce of the organisation have the right skills and capabilities to deliver on your value creation objectives?
   

3. What is your broader workforce strategy, particularly when it comes to retention? With 38% of Australians planning to leave their jobs in the next 12 months, it’s more critical than ever to evolve your employee value proposition in order to retain your staff and minimise disruption across your value chain. 

Why people skills are the X-factor in DS&O

Speaking of people, I’m often asked what qualities we seek in DS&O team members. The most valuable thing you can do as a DS&O expert is to put yourself in your client’s shoes and to consider what effect a transaction will have on them personally. While your technical competency as a DS&O expert is non-negotiable, often it’s your empathy and your people skills that will set you apart. We might look after the A-Z of deals in DS&O, but it’s people skills that provide the X-factor. 

More information 

Find out more about our Deals Strategy and Operations services.