Question? Leave a message!




Corporate development strategy

Corporate development strategy 16
Corporate development strategy Thriving in your business ecosystem Deloitte’s corporate development survey, fifth editionCorporate development strategy: Thriving in your business ecosystem Deloitte Advisory Deloitte Advisory helps organizations turn critical and complex business issues into opportunities for growth, resilience, and long-term advantage. Our market-leading teams help clients manage strategic, financial, operational, technological, and regulatory risk to maximize enterprise value, while our experience in mergers and acquisitions helps clients move forward with confidence. Deloitte’s M&A Services Deloitte’s Merger and Acquisition professionals advise strategic corporate buyers and private equity investors throughout the entire M&A deal life cycle. From strategy development and target screening through transaction execution, integration, and divestiture, our M&A professionals have the domain knowledge, extensive industry experience, and global reach to provide a tailored approach and help build value for clients. Deloitte’s corporate development survey, fifth edition About the authors Chris Ruggeri is a principal with Deloitte Transactions and Business Analytics LLP and is a leader of Strategy & Innovation. She has more than 25 years of experience in M&A focused on advising public and private companies, boards of directors, and special committees on negoti- ated and unsolicited transactions. She helps clients understand the value of business enterprises and associated key value drivers and risk factors. Ruggeri is a principal author of Deloitte’s Market Value Creation and Investor Relations point of view, and leads Deloitte’s focus on corporate development effectiveness. Sara Elinson, a principal in Deloitte Transactions and Business Analytics LLP, leads the Transaction and Modeling Advisory practice within Deloitte Advisory. She focuses on helping clients achieve their strategic objectives through the use of modeling and financial analysis. She has more than 15 years of experience advising public and private company executives on M&A and other strategic investment decisions. Elinson also advises boards of directors on transactions through the provision of fairness opinion services. Ken Kirschner, a partner with Deloitte & Touche LLP, is the US leader for the Technology, Media & Telecommunications M&A Transaction Services practice. He has more than 27 years of public accounting experience, with almost 20 exclusively in M&A. Kirschner has led hundreds of domestic and cross-border deals and has advised leading private equity as well as corporate buyers and sellers on the due diligence, accounting structuring, and financial reporting aspects of transactions, includ- ing related contract and financing matters. Tony Blanchard is a managing director with Deloitte Corporate Finance LLC, where he helps lead the industrials sector team as well as Corporate Divestiture and Strategic Growth Services initia- tives. Blanchard has over 15 years of investment banking and corporate finance advisory experience. Over this time, he has advised on more than 90 M&A transactions representing approximately 12.5 billion in transaction value, including more than 50 cross-border transactions representing over 4.2 billion in transaction value. Blanchard has represented both buyers and sellers of privately held companies and subsidiaries or divisions of public companies. Corporate development strategy: Thriving in your business ecosystem Acknowledgements e a Th uthors would like to thank Rich Rorem, Hector Calzada, and Michael Rachlin for their significant contributions and insights. We would also like to thank Angela Hoidas, Sarah Long , Junko Kaji, Angie MacPhail, and Shelley Pfaendler for their guidance in helping to make this piece a reality. Deloitte’s corporate development survey, fifth edition Contents The continuing evolution of corporate development 2 Innovation through M&A 6 Partnering with the business Deal origination 12 Making yourself irresistible Shareholder activism 18 Investors flex their muscles Investor relations 24 Corporate development’s hidden asset Appendix 27 Profile of survey respondents Endnotes 29 Contacts 30 1Corporate development strategy: Thriving in your business ecosystem The continuing evolution of corporate development HE recent surge in M&A activity means norms, that can be grown and monetized in Tthat corporate development teams are different ways, with different combinations of working harder than ever. The catch is that partners or transactions. Rather than pass on hard work may not be enough. To create suc- an early-stage asset because it doesn’t fit stan- cessful transactions, today’s deal environment dard transaction profiles, consider for example, creating a strategic option by incorporating it demands new levels of creativity and forward as a partnership or as a venture-capital type thinking from corporate development pro- of investment. Conventional approaches to fessionals. Whether the question is where to stimulate deal flow may not be adequate to cre- find targets, how to structure terms, or when ate the types of opportunities that will leverage and what to communicate with shareholders the value of the business platform and create about a transaction, one sure answer is that competitive separation. And when it comes what worked yesterday may need to evolve and to negotiating, the adapt to an increas- mind-set of winning ingly fast-paced and walking away is and ever-evolving quickly becoming environment to Innovation has become passé, as the benefits succeed tomorrow. of long-term partner- As we explore in a core need for just ships with found- this report, innova- ers and specialists tion has become a about any company in become clearer. core need for just In parallel with about any company any industry. internal challenges to in any industry. A innovate, corporate large majority— development profes- nearly two-thirds— sionals should also rethink how to handle the of the 357 corporate development professionals who responded to our survey are being tapped rising tide of external pressure from increas- to help fill this need. The path to succeeding ingly activist shareholders: not just activist in this mission starts with challenging some hedge funds but shareholders of all stripes who sacrosanct concepts embedded in traditional are increasingly inclined to express their views corporate development processes. Instead of and preferences about the strategic direction thinking about corporate development as fill- of businesses they invest in and the businesses’ ing gaps in a product portfolio or geography, performance. As headlines suggest, and our for instance, it may be time to break free from survey respondents confirm, activist agita- conventional organizational charts and look at tion is driving higher deal volumes and deal the enterprise as a dynamic platform of valu- values. Developing constructive dialogues with able assets, where the objective is to consider a investors and helping them gain confidence variety of transaction alternatives and business and understand actions corporate executives partners, some outside traditional industry are taking to help optimize value within the 2Deloitte’s corporate development survey, fifth edition corporate portfolio of assets and businesses how to take a hazy business model and shape are becoming nearly as important as creating a it into a deal opportunity. This can be particu- robust transaction in the first place. larly daunting for corporate acquirers since Push and pull, corporate development is new business models can be perceived as risky moving into a new era. Yes, the playbooks, and can, therefore, discourage established technical competencies, repeatable deal disci- acquirers from their pursuit. Becoming more plines, and governance structures companies accomplished risk managers is an increasingly have honed over the past few decades are still valuable part of the corporate development essential—but these fundamentals are no lon- tool box. ger sufficient to seize market opportunities that In striving to achieve excellence in a new may be amorphous where new business mod- age, leaders should take stock of the specific els or ways of doing things need to be defined. new capabilities their teams will need. Most This reflects rapidly evolving ecosystems and likely, this list will include new methodologies the increasing impact of technology on all and tools to assess cutting-edge companies that industries, which is redefining competitor and oen l ft ack traditional metrics or where business business partner behavior and the opportu- models are yet to be defined and therefore dili- nity set. What should be considered now for gence focused on past performance may have success is fresh thinking, a high tolerance for limited value in evaluating future performance disruption, and the ability to be nimble and expectations. New deals will also likely require quick to convert change into an opportunity new subject matter specialization. Similarly, for value creation. due diligence processes will also have to morph to adapt to the unique risks associated with an innovative transaction. One major risk of Innovation through M&A: acquiring an early-stage business, for example, Partnering with the business is that the founding team leaves, taking with it Our latest corporate development sur- valuable intellectual property. vey reveals that the pursuit of innovation is Corporate development professionals will transforming the M&A world. Roughly two- also have to adapt to new deal structures that thirds of corporate development leaders who may not include the levels of ownership or responded to the survey say their function has control they’re accustomed to. Innovative firms become a more important source of innovation are oen t ft he product of passionate entre- over the past two years, and nearly 60 percent preneurial teams that may stipulate staying of executives believe the volume of innovation- involved operationally or financially with their centered deals will increase over the next two organizations as a main condition of a deal. years. Industry ecosystems are expanding and Innovation is not easy, but with it may nontraditional participants are entering the come an unprecedented opportunity for mix, creating both threats and opportunities. corporate development teams to add value to Examples abound, with, for example, technol- their enterprises in outstanding ways. Strong ogy companies making their mark across a leaders who can adapt to the new environment broad range of industries. may stand to see great results, and with them, Disruption arrives in different forms for great rewards. each industry. The challenge for corporate development teams now is how to handle the Deal origination: Making new worlds they face. The skills and technical yourself irresistible expertise that teams have honed in past years are still essential, but should now be comple- Keeping the deal pipeline filled is a perpet- mented with a knack for creativity and flex- ual task for acquisitive companies. The chal- ibility. In some cases, it may mean knowing lenge, in a nutshell, is how to effectively create 3Corporate development strategy: Thriving in your business ecosystem a proprietary deal pipeline without exhaust- Shareholder activism: ing all of corporate development’s resources. Investors flex their muscles A company’s own employees are generally Shareholder activists are making their expected to be the source of the most success- mark on M&A. This year’s corporate devel- ful deals, in executives’ opinions, but few can opment survey found that nearly 60 percent ao ff rd to devote enough time to origination of corporate development leaders see share- and the ongoing development of relationships holder activism ae ff cting transaction activity with potential sellers. Even at the most experi- in their industry. Reinforcing this sentiment, enced dealmakers, fewer than half of the deals nearly a quarter (24 percent) of respondents (45 percent) come through employees. say their own companies are more likely to To stay competitive, many companies engage in M&A transactions as a result of are focusing on an alternative, less resource- activism. The recent wave of shareholder intensive route to good acquisition candidates: activism has emboldened many investors drawing entrepreneurial targets to them. This of all stripes to assert their views when it tactic of building a magnetic corporate reputa- comes to how companies deploy capital and tion attempts to prompt sellers to proactively manage performance. approach a company rather than a buyer stand- Historically, when activists have circled the ing in line with the rest of its competitors to get gates, they’ve oen ad ft vocated for companies to a bite at the apple. Some 60 percent of corpo- divest assets in some form: to sell nonoperating rate development leaders say they are investing assets, split up their enterprises, or undo past in being perceived as preferred acquirers. acquisitions. Effective preparation for compa- Developing that kind of positive reputation nies should include having a comprehensive means companies can create a strong pres- and objective understanding of the intrinsic ence in the communities that matter to their value of the enterprise and its individual busi- industries. From attending conferences to nesses and assets. This forms a baseline against setting up satellite offices, the goal is to build which the expected market value of logical long-term relationships and to be seen as part strategic and transaction alternatives can be of the fabric of the community. At the same compared. Corporate development teams can time, corporate development professionals play an important role in providing a view require new levels of flexibility within deal- of intrinsic value, defining possible strategic making parameters to be nimble when oppor- and transaction alternatives, and providing an tunities arise. Teams that are bogged down by informed point of view on market conditions. corporate bureaucracy may find they lose out This analysis should be routinely refreshed on attractive targets that do not want (or need) and, to the extent the portfolio includes any to conform to standard ways of doing things. businesses that are underperforming or could Behind the scenes, companies may also want conceivably create more value combined with to consider investing in specific technologies to another company, executives should have iden- manage their deal pipelines and relationships tified them and have an exit strategy in mind, more efficiently. in case they need to act. Ultimately, corporate development leaders e n Th ext phase of agitation, however, is will need to balance deal origination resources likely to focus on accelerating growth. Rather between direct and indirect approaches. than break up a company, many investors are os Th e who can juggle well may stand to see an increasingly seeking to use strong companies evergreen pipeline of viable deal opportuni- as platforms for bigger and better growth ties; those who sit back and expect to find good through acquisition. Before activists hand deals the same way they did 10 years ago will executives their lists of preferred acquisition likely miss out. targets, though, it’s imperative for corporate 4Deloitte’s corporate development survey, fifth edition development executives to get a head start. To executives mainly see IR as a function that be effectively prepared, as part of the normal disseminates information and answers ques- routine, companies should have a well-defined tions, rather than as a key business partner that M&A strategy and prioritized list of preferred advises on shareholder perspectives during targets and associated pros and cons so that transaction processes. they can stay in control of the M&A conversa- Yet, to the extent these trends hold sway, tion should a debate arise with shareholders. companies are missing out on opportunities Finally, to the extent that activist activity to create a robust feedback loop with inves- puts companies in play unexpectedly, corpo- tors. On one side, closer connections between rate development teams should be prepared IR and dealmakers allow IR professionals to to respond quickly and capture opportunities fully understand transactions so that they can when they arise. satisfy investors’ information requests about a deal. At the same time, IR professionals can oer t ff heir companies valuable insights into Investor relations: Corporate investor sentiment and likely reactions to deals. development’s hidden asset To be sure, the role of IR varies by company Today’s investors have strong opinions size and deal experience, as well as by indus- and are not afraid to share them. As a result, try. Ironically, the data suggest that large and getting buy-in from shareholders may end up frequent dealmakers may have the furthest to being nearly as important as coming to terms go in fully utilizing all that IR has to oer ff . We with the target when it comes to executing a also believe that simply providing investors successful deal. But our corporate develop- more information is not necessarily always ment survey suggests that dealmakers are the solution. underutilizing employees who are generally Getting the right message out at the right best positioned to create this dialogue: investor time is essential for a company to get credit relations (IR) professionals. for the value embedded in a deal. However, According to the data, IR teams are usu- tuning your communication strategy to inves- ally pulled into the deal process fairly late in tor desires takes more than simply putting a the game. Few corporate development execu- mouthpiece in place; it takes thoughtful two- tives (20 percent) say IR is critical to achieving way partnership and a new level of respect for deal targets. Overall, corporate development those who know shareholders best. 5Corporate development strategy: Thriving in your business ecosystem Innovation through M&A Partnering with the business Figure 1. Change in importance of corporate development HIS year’s corporate development survey as a source of innovation over last two years Treveals that the pursuit of innovation is transforming the M&A world. A large major- Less important ity—roughly two-thirds—of the corporate development leaders who responded to the No 3% survey say their function has become a more change important source of innovation over the past two years; virtually no one says it has declined 35% in importance (figure 1). The pressure to transform is only likely to increase, as nearly 60 percent of executives believe the volume of innovation-centered deals will increase over the next two years (figure 2). Disruption—and the imperative to embrace 62% and leverage it—arrives in different forms for each industry. And while research-intensive More important industries like life sciences and technology may seem to have an inherent advantage in the innovation game, the fact is that few com- Graphic: Deloitte University Press DUPress.com panies understand what it means to be truly Figure 2. Expected change in volume of innovative deals disruptive and do business in a totally differ - over next two years ent way. In financial services, for example, a whole new group of alternative lenders has Will decrease arisen as Dodd-Frank rules challenge tradi- tional lending, forcing many old-line banks to 2% Little or no consider and monitor new solutions. Perhaps change not surprisingly, financial services executives are the most likely to consider their corpo- 41% rate development teams very well prepared to handle innovative deals in Deloitte’s survey (figure 3). In health care, reform legislation is pressuring many hospitals to reevaluate their technology investments as well as the ways 57% they measure performance. e c Th hallenge for corporate development Will increase teams now is how to prepare to handle this new world. For the past couple of decades, most have achieved high levels of success with Graphic: Deloitte University Press DUPress.com 6Deloitte’s corporate development survey, fifth edition Figure 3. Percentage of respondents whose corporate development groups are “very well prepared” to manage expected increase in innovative deals, by industry Financial services 38% Business and professional services 24% Technology, media, and 23% telecommunications Health care and life sciences 16% Manufacturing 16% Percentages calculated on a base of respondents expecting the volume of innovative deals to increase (N = 201). Graphic: Deloitte University Press DUPress.com a focus on defining, streamlining, codifying trend we have reported on in past corporate and practicing a repeatable deal process to development surveys is corporate development drive efficiency; honing technical skills and teams moving further upstream and creating a introducing tools such as playbooks, knowl- closer connection to the strategists in the busi- edge management tools, e-deal rooms, and nesses, there are still many acquirers that limit dashboards; and improving governance. This the role of corporate development to its core expertise remains important—but by their objective of executing transactions. Although very nature, innovative deals don’t conform this can drive effectiveness by focusing corpo- to a single description. Rather, the next wave rate development on its core competency of doing deals, it also creates the potential for strategic blind spots or situations A first step in pursuing an where the dealmakers are more focused on getting effective innovation agenda: the deal done rather on than achieving corporate getting closer to the business. strategy. Fostering more connections between the two can allow the corporate development team to better of deals will likely require corporate develop- understand the business strategy and aspects ment professionals who are futurists at heart: of competitive differentiation, and how it could creative, nimble, and able to see opportunities make quantum leaps by helping the businesses in unusual places and circumstances and who view potentially disruptive market participants are comfortable with uncertainty. as more of an opportunity than a threat. A first step in pursuing an effective inno- From there, leaders should take stock of vation agenda: getting closer to the business. the specific new capabilities a future-forward According to our survey, a lack of connectivity deal might require. It’s no longer enough to between the corporate development team and shoot for synergies by combining with com- the business units they support is among the petitors and suppliers in the same market. biggest impediments to driving innovation Instead, many companies are looking for through corporate development. Although the cutting-edge firms with new business models 7Corporate development strategy: Thriving in your business ecosystem Figure 4. Expected change in risk profile of deals over next New types of deals will also require new two years subject matter expertise. Case in point: While bitcurrency may not find a place in main- Less risk stream commerce for years to come, banks can More risk no longer ignore the blockchain technology 12% that records transactions like no prior ledger system could, a technology which has the potential to change the very heart of their core 33% banking processes. Corporate development leaders will need to assess their best sources of learning in promising areas, and decide if and when to bring in external specialists to help their teams come up to speed. 55% Similarly, diligence processes will also have to morph to adapt to the unique risks associ- About the ated with an innovative transaction. One major same risk of acquiring an early-stage technology firm, for example, is that the founding team Graphic: Deloitte University Press DUPress.com leaves, taking with it valuable intellectual and technologies they can import to improve property. An equally unfavorable outcome existing businesses, jump into new markets, or could be that the founders stay, but lose their create competitive differentiation. Deal theses entrepreneurial spirit in the context of a are also morphing and new “currencies” like larger company. Accounting for these pos- knowledge, data, and innovative culture are sibilities is crucial, yet the Deloitte Corporate coming to the fore. Development Survey suggests many dealmak- Supplementing the traditional transaction ers are now unaware of the technological, to acquire products and associated revenues, operational, and retention-related risks they many companies are increasingly looking to may face. The majority of respondents (55 per - acquire people and ideas that will help con- cent) expect no change in risk profiles despite tribute to an entrepreneurial mind-set within the increase in innovative deals (figure 4). To the company to perpetuate more innovation. succeed in this environment, corporate devel- Finally, the standard post-deal ritual of sever- opment professionals will need the business ing ties with the seller is likely to give way to planning skills to imagine future opportuni- ongoing relationships as more companies par- ties, in addition to core due diligence skills that ticipate in collaborative business partnerships tend to focus on past performance and confir - and ecosystems. mation of existing business models. What all of this means is that corporate Corporate development professionals will development teams will likely need new meth- also have to adapt to new deal structures that odologies and tools to assess deals. For one, may not include the levels of ownership or teams that are accustomed to analyzing targets control traditionally associated with M&A. with established products in mature markets Innovative firms are oen t ft he product of pas- with orderly financial statements have to con- sionate entrepreneurial teams that may make sider additional valuation methods for early- staying involved operationally or financially stage companies with shorter histories, limited with their organizations a main condition of a revenues, and evolving business models. A deal. And as business ecosystems evolve, trans- traditional publisher, for example, would likely actions are increasingly multistep, multiparty analyze a digital media property very differ - affairs. Consider how Uber has gone about ently than a monthly print magazine. establishing operations in India: The process 8Deloitte’s corporate development survey, fifth edition involved an investment from Tata and a com- Other companies have created forums to mercial relationship with Airtel to provide 4G attract business partners and foster innovation. services in vehicles, equip drivers with devices Companies as diverse as DuPont, Johnson & and plans, and provide second-party payment Johnson, Nestle, and Samsung, among others, verification services, as well as a handful of have introduced innovation centers in entre- other downstream transactions across a newly preneurial hotspots around the globe that work formed ecosystem. with innovators and provide resources and While one-to-one deals will always have a collaboration to help accelerate success. place, the new “sharing economy” will make Innovation is not easy; that’s clear. But it increasingly incumbent on dealmakers to the need for constant change can bring with manage multiple parallel and serial business it unprecedented opportunity for corporate relationships to create their desired market- development teams to add value to their places. Corporate acquirers may consider enterprises in outstanding ways. Strong lead- taking a page out of the private equity and ers who can adapt to the new environment activist playbooks that have assembled a cadre may stand to see great results, and with them, of loosely organized specialists and advisors great rewards. that they can tap into on an as-needed basis. Next steps Actions for leaders to consider include: 1. Consider ways to strengthen the tie between corporate development and business strategists. Would a different resource model—for example, corporate development embedded in the busi- ness unit—work better for your organization? Or are there mechanisms—rotations, standing meetings, reporting frameworks—that can help provide corporate development what it needs from business units to help it innovate? 2. Take stock of the new skills and attributes needed to drive innovation through M&A. In a deal reality that now includes the traditional one-to-one transactions as well as “multiple parallel and serial partnerships,” how should the team be bolstered? And in efforts to keep pace with disrup- tive, oen min ft d-bending technologies, what are the best ways to move the deal team up the learning curve? How should external subject-matter specialists be identified and used? 3. To what extent do you need new policies or governance procedures around what a deal can look like? Will corporate development be allowed to cut new-style deals on the fly? Will everything need pre-approvals? Are there unbreakable rules that need to be broken? 9Corporate development strategy: Thriving in your business ecosystem ARLEN SHENKMAN CFO of SAP North America, previously global head of SAP Corporate Development Deloitte: What do you think about sourcing deals at SAP? To what extent are your own employees identifying deals, and how much do you rely on third parties? AS: Almost all of our deals come through internal sources. We see about 500 unsolicited opportunities that come from external sources—but we rarely buy those companies. We don’t participate in auctions. Frankly, we don’t buy companies that we don’t already have a pre-existing relationship with. If a banker brings us a company we’ve never heard of, we may then go form a relationship, but it’s almost unheard of for us to buy a company that a bank pitches to us when we have no relationship. Transactions here tend to either be top-down or bottom-up. Deals above 1 billion tend to be driven top-down and deals that come bottom-up from a business unit tend to be smaller. Deloitte: When does the corporate development team get involved with these opportunities? AS: We tend to be involved from the time we realize there’s a white space in our portfolio. We tend to be a very matrix organization, so we need to ensure the lines of communication across our organization are effective. For instance, a region may know, from a go-to-market standpoint, what our customers want, but it may not necessarily know, from a portfolio standpoint, what we’re building on our roadmap. Generally, we have a portfolio planning process that looks at where we’re going to build organically, where we intend to partner, and, then, where we intend to buy. Corporate development has a team of people who go to those business reviews where we’re analyzing the portfolio. Once the business comes to the conclusion that we either don’t have a top-tier partner or we’re not going to build something, that’s when we really get involved. Deloitte: In many companies, corporate development struggles to interact in a seamless way with the business units. How do you promote that partnership at SAP? AS: What I tell our people is, “It’s not our job to say no to deals, it’s our job to help people understand what the risks and rewards are around a deal.” We’ve historically gone out of our way to try to help business leaders work through ideas. Even if a given idea may not be actionable, we’ll still spend time to make sure that we’re educating them about why the idea may or may not make sense, whether that’s because of timing, price, or the fit in the portfolio. We want to get more people in the company thinking along those lines. Deloitte: What’s the relationship between strategy and corporate development? AS: Our corporate strategy function is very high-level. It tends to focus on defining where we want to expand addressable markets, and where we want to enter new markets in terms of new countries or new industries. Once we determine where we intend to take our business, it’s usually a relatively seamless handoff to corporate development. Deloitte: How much do you interact with the venture capital community or with private equity to source deals? 10Deloitte’s corporate development survey, fifth edition AS: We see a fair amount of deal flow from venture-backed companies, and we have acquired many venture-backed companies. We also talk to many venture capitalists during the year. SAP has a close relationship with Sapphire Ventures, which has made more than 130 investments. This relationship also fosters our relationships with the venture capitalist community. On the private equity side, we bought Fieldglass about 18 months ago from Madison Dearborn Partners LLC and Hybris, prior to that, from HGGC. Those are the only companies I can recall buying from private equity. I do think private equity is becoming more relevant as it acquires (more) software companies, and then uses some of those acquisitions as platform companies or continues to invest in other ways. Deloitte: Based on what you’ve seen and done, is there one thing you think companies could do to try to generate more innovation out of corporate development? AS: My two cents on that is: M&A is a tactic; it’s not a strategy. If your idea is to go buy a company to innovate, it’s one tool you have around innovation. But in and of itself, it’s not a strategy. For example, when we decided we needed to transform into a cloud business, we wanted to ensure that we acquired assets in adjacencies where we hadn’t had great success in building cloud assets. We bought a series of those companies and put them together. We had an integration paradigm around it and we accelerated organic development around our strategic acquisitions. I think if M&A is your innovation strategy, you have a problem. 11Corporate development strategy: Thriving in your business ecosystem Deal origination Making yourself irresistible VEN in the age of powerful Internet search Corporate Development Survey expect their Eengines and robust databases, finding and own employees to be the source of the most managing quality transaction targets is no successful deals in the next two years, far ahead easy task. Yet, stimulating deal flow is critical of other sources such as bankers or intermedi- to future growth, particularly when change is aries (figure 5). occurring at a rapid pace and competition for Today, only 38 percent of deals come attractive assets is high. The challenge, in a directly through employees, barely ahead nutshell, is how to effectively create a propri- of the proportion (32 percent) that come etary deal pipeline without exhausting all of through intermediaries such as bankers or corporate development’s resources. brokers (figure 6). At experienced dealmakers An obvious solution to finding more deal that complete more than three transactions targets is to devote more people to the task. per year, the ratio of employee-created deals In fact, nearly half of the corporate develop- increases to 45 percent, suggesting that regular ment professionals who responded to Deloitte’s Figure 5. Expected source of the most successful deals over next two years Directly created by employees of 47% our company Bankers, brokers, or other 26% intermediaries Direct approach from targets or 20% ecosystem partners Private equity or venture capital 4% Other 2% Graphic: Deloitte University Press DUPress.com Figure 6. Current primary source of deals 3+ deals per year 26% 21% 3% 5% 45% All respondents 38% 32% 21% 5% 4% Directly created by employees of our company Private equity or venture capital Bankers, brokers, or other intermediaries Other Direct approach from targets or ecosystem partners Graphic: Deloitte University Press DUPress.com 12Deloitte’s corporate development survey, fifth edition acquirers expect more value from deals that Figure 7. Number of full-time employees responsible for identifying and creating deals they originate. Yet human capital is expensive. Most companies have between 0 and 2 employees 11+, devoted to sourcing, and only about 20 percent 7% 6–10, are very likely to add more resources over the 8% next two years (figures 7 and 8). So how can companies source compre- hensively, yet efficiently? One effective tactic 3–5, is to build a magnetic corporate reputation, 21% 0–2, prompting sellers to proactively approach a 64% buyer instead of waiting for the buyer to pur- sue them. This focus is evident in the survey results this year. When it comes to considering returns on investment, 36 percent of executives say relationship building within their ecosys- tems is most promising, a full 20 percent above Graphic: Deloitte University Press DUPress.com the next most favored options, such as choos- ing to add headcount to scout deals and using Figure 8. Likelihood of dedicating additional resources to technology. And some 60 percent of corporate deal origination over next two years development leaders say they are investing in being perceived as preferred acquirers, with Very likely Not likely the aim of developing more relationships with potential targets. Becoming a preferred acquirer suggests 20% taking a multidimensional approach to the 39% marketplace. For one, companies that want to be known as friendly buyers strive to estab- lish a strong presence within the industries, ecosystems, and microclimates that pique their interest. For some, that simply means attend- ing conferences and setting up meetings on a consistent basis. For highly acquisitive compa- 41% nies, particularly those targeting entrepreneur- Somewhat ial targets, it could also involve establishing likely an office in known hot beds of activity. New Graphic: Deloitte University Press DUPress.com York-based CA Technologies, for example, recently opened an R&D center in Santa Clara, learns about a company isn’t when they initiate CA, to increase its presence while consolidat- an auction process. 1 ing acquisitions in the region. Corporate Just showing up isn’t enough, though. It’s venture funds can also be powerful ways to also increasingly important that companies create presence. Whatever the specifics, the demonstrate an interest in partnering with main goal is to have an ear to the ground to get potential targets, rather than simply consum- an early indication of mature companies that ing them. This is true with both large and may be coming on the market or early-stage small and mature and early-stage targets, and companies eager to accelerate growth in part- it requires that corporate development profes- nership with a larger enterprise. The objective sionals have some flexibility within corporate is to ensure that the first time a potential seller 13Corporate development strategy: Thriving in your business ecosystem deal-making parameters and the ability to be intelligence with minimal effort may be a nimble and responsive in coming to agree- powerful way to increase productivity without ments. Teams that are bogged down by cor- additional hires. For example, a biopharmaceu- porate bureaucracy may find they lose out on tical company that was struggling to effectively attractive targets that do not want to conform screen hundreds of potential targets created to standard ways of doing things. Ideally, serial a dynamic database populated not only with acquirers can also back up these efforts with a relevant target data, but also its own strategic long list of references from past acquisitions, priorities. They added a visualization layer with who can vouch for their collaborative abilities. filtering capabilities which allowed the corpo- rate development team to identify and prioritize a string of targets that were well-suited to help Corporate development leaders will need accomplish the company’s strategic priorities. to balance deal origination resources Ultimately, corporate development leaders between direct and indirect approaches. will need to balance deal origination resources between direct and Behind the scenes, companies may want to indirect approaches. They’ll need their team to consider investing in specific technologies to strengthen relationship-building skills and to manage their deal pipelines more efficiently. convey the right message about the company’s Many companies juggle tens or hundreds of approach to deals, and then invest in programs potential transaction opportunities. These and resources to back up that message. Those universes are dynamic and hard to capture in a who can juggle these priorities may stand to spreadsheet, as the attractiveness of any given see an evergreen pipeline of viable deal oppor- target may fluctuate in light of other corpo- tunities; those who sit back and expect to find rate decisions and transactions. New systems good deals the same way they did 10 years ago that can track changes as they occur and will likely miss out. give corporate development teams real-time 14Deloitte’s corporate development survey, fifth edition Next steps Actions for leaders to consider include: 1. Consider the internal resources available for deal origination within your company, from execu- tives to frontline employees. Are they optimally deployed now? How could you better leverage what you have in order to gain more intelligence around new targets and partners? 2. Examine the rules and governance processes for deal making that your organization has estab- lished. From there, aim to identify where the corporate development team might have latitude to negotiate in different ways, or outside the norms, without compromising the integrity of the process. 3. To the extent possible, gather some information about how your company is perceived by past and potential sellers. For example, if you asked a past seller to endorse your company, would you be happy with their response? If the answer is no, consider what corporate development can change about the ways the company does deals to be seen more favorably. 4. Take a hard look at the technology corporate development is using to manage the universe of opportunities. Is it effectively capturing the dynamics of that universe? What additional capabili- ties would help the deal team be more productive and agile? 15Corporate development strategy: Thriving in your business ecosystem MARK E. MLOTEK Executive vice president and chief strategic officer, Henry Schein, Inc. Deloitte: What is Henry Schein’s overall approach to deal sourcing, and has that changed during your tenure there? MM: Traditionally, we’ve sourced most of our transactions internally, and I think that’s still true for the most part. A lot of people send us information about the market, and we digest, and we pursue. We get information from sales, from marketing, from our own observations, we get it from literature. And the senior leadership team is fairly well-versed about who the players are in the industry. So, we don’t have hundreds of people scouting; we don’t need to. At some point it may change, because as you get bigger you have to do bigger deals to move the needle. We may have to participate in more processes than we have historically, but for now, this still works for us. Deloitte: What does your deal flow look like in a typical year? How many deals do you do and what size do you consider your sweet spot? MM: We do somewhere between 10 and 15 transactions a year, and we focus on sub-100 million revenue companies, though every now and then, one or two exceed that amount. All told, we added on average over the past few years, approximately 0.5 billion dollars of revenue a year through a series of transactions. We find less competition that way, we find lower prices, and we find we keep our teams active and engaged. We believe that this is more productive than participating in a deal process for four months, spending 0.5 million or 1 million in fees, and possibly coming away with nothing in the end. Deloitte: How do you find innovative deals—the ones that involve disruptive technologies or business models? MM: We figure out how to do one or two transactions that involve innovative products, services, or technology a year, and budget for that investment. For example, the last investment that we just announced was a data company. But these types of transactions are complicated and difficult. At the end of the day, we’re a company that investors have traditionally looked to for consistent earnings growth. They’re not necessarily looking to us for the next best product that will bring a large spike in revenue. And generally, depending on the life cycle of the innovation, if you get it early, there’s very little in terms of ROI metrics that one could use that would make sense for a traditional company like ours. Deloitte: Is there one thing you would suggest that companies can do to drive more innovation through the corporate development function? 16Deloitte’s corporate development survey, fifth edition MM: I really think it has to start at the top. The CEO has to make it a priority; I don’t think it can come out of business development. In our company, our CEO and senior management team help drive innovation, and with their partnership, we help execute. Culturally, Henry Schein CEO, Stanley Bergman, meets all target companies at some point in every transaction process. If the transaction is something fairly big or involves a new strategy, Stanley will attend and present our vision at the first meeting. Deloitte: As a large public company, how do you preserve the entrepreneurial spirit of some of these acquired businesses, especially those that are more technology- or innovation-focused? MM: A third of our revenue is in what we call “joint venture partnerships,” where we have former owners continue to hold a stake in the acquired business for a number of years. So when they grow the company, they grow their value as well as ours. We have figured out how to engage the private equity model of equity incentives within a big company that, I’ll tell you, is quite complicated and difficult. It takes a lot of time and effort. Management is very different in a partnership than it is in a traditional org chart. But I would say it’s one of our core competencies. Deloitte: Along that same lines, is there anything your team does to explicitly promote Henry Schein as a “preferred acquirer”? MM: I do believe we are an acquirer of choice, and I do believe it has to do with our track record. We must have done nearly 250 acquisitions since we have gone public. Of those transactions, at least half have to be in these equity partnership models. As far as I can recall, we’ve never had a fight about how to own the company or how to manage the company—in the buy, in the ownership, and, ultimately, in the sell. So we have a whole bunch of people who will stand up as supporters when the next person is interested. We just give acquisition candidates a list of people they can call, that we’ve worked with, and that’s very helpful. Having a track record and this core competency is something that will continue to be a competitive advantage going forward. 17Corporate development strategy: Thriving in your business ecosystem Shareholder activism Investors flex their muscles HAREHOLDER activism has reached a play (figure 9). This is in line with the standard Sfever pitch. Investor groups targeted 200 activist strategy over the past several years to 2 companies in 2014, up from 120 in 2010, and push companies to sell or spin off underper - the market value of global investments in pub- forming businesses in order to create more lic companies by activist investors has topped 250 3 billion. These investors are assertive, they’re vocal, and Nearly 60 percent of corporate they’re not going away any time soon. And since activ- development leaders see ists normally come with some type of transaction shareholder activism ae ff cting request for the company, corporate development M&A activity in their industry. executives are under pres- sure to consider how to respond—and stay ahead of their critics. This year’s corporate development survey value. In 2015, for example, this strategy led to found that nearly 60 percent of corporate eBay spinning off its PayPal division into a sep- development leaders see shareholder activism arate public entity and Manitowoc Company ae ff cting M&A activity in their industry. The announcing a plan to split its crane manufac- most common effect, cited by 27 percent of turing and food service equipment businesses respondents, is to put companies or assets in into two separate companies. Deal totals Figure 9. Impacts of increased shareholder activism on M&A activity in company’s industry Put companies or assets in play 27% Placed upward pressure on deal 23% price/value Increased competition for deals 20% Increased uncertainty around closing 14% Other 1% No significant impacts 42% Graphic: Deloitte University Press DUPress.com 18Deloitte’s corporate development survey, fifth edition appear to reflect this activity; global divestiture Figure 10. Expected impact of shareholder activism over the next two years values in 2014 were at their highest level since 4 2007 and are almost as high in 2015. Reinforcing these trends, nearly a quarter (24 percent) of respondents say their own Deal values companies are more likely to engage in M&A transactions as a result of shareholder activism. Decrease deal values About a third of respondents expect activism Increase to bring about an increase in both deal volume deal values 4% and deal value (figure 10). As of November, in fact, the aggregate value of year-to-date M&A in the United States for 2015 had already sur- 30% 5 passed the record levels seen in 2007. When activists circle the gates, companies are likely to respond by being more careful in the deal process. Survey comments suggest they’re more deliberate about the evaluation 66% process, and there’s more involvement from senior management. This kind of defensive behavior makes sense, as investors have oen ft No change challenged the value the company has paid or received respectively from previous acquisi- tions or divestitures. But while activists have historically entered as naysayers, pressuring companies to split up their enterprises and undo past acquisitions, Deal volume the next phase of agitation is likely to have a more positive focus on accelerating growth. Decrease deal volume Rather than break up a company, investors Increase are increasingly seeking to use strong compa- deal volume 8% nies as platforms for bigger and better growth through acquisition. Some signs that this type of activist approach is happening more 31% broadly: Nearly a quarter of respondents report upward pressure on deal prices as an effect of activism, and 20 percent see increased com- petition for deals. This suggests that demand for assets is increasing along with supply as 62% activists stoke activity from both sides. We are starting to see examples of activist hedge funds that accumulate a significant stake in a busi- No change ness and use that position to publicly advo- cate for accelerated growth through bolt-on acquisitions, or even for business combinations with larger competitors. This suggests a need for companies to have a prioritized point of Graphic: Deloitte University Press DUPress.com view of accretive acquisition candidates that can be added to the acquirer’s platform to drive 19Corporate development strategy: Thriving in your business ecosystem value, as well as a view on potential value cre- overall M&A strategy. Whether it’s extending ation opportunities in combination with larger the platform or transforming the platform, it’s peer companies. important to define it and make sure it reflects Before activists storm the board room with a risk profile that is acceptable to the board and a list of acquisition targets for the company to other shareholders. While activists may bring consider, though, it’s imperative for corporate some good ideas, they are unlikely to have development executives to have a head start. integrated them with internal considerations Anticipating the activist conversation begins about risk management and/or cultural fit and with taking a critical view of the value of the may look to push the company to take on more enterprise, both in total and as the sum of the risk for faster growth without fully appreciat- parts. To the extent the portfolio includes any ing the negative implications. businesses that are underperforming or could Finally, to the extent that activist activity conceivably create more value spun off or puts companies into play unexpectedly, cor- combined with another firm, executives should porate development teams should be prepared have identified them and have an exit strategy to respond quickly and capture opportunities in place. when they arise. This speaks to having the fun- Defending your company against activists— damentals of process and governance tightly or even working constructively with them— nailed down, so that they help rather than also requires that you have a well-constructed hinder agility. Before activists storm the board room with a list of acquisition targets for the company to consider, though, it’s imperative for corporate development executives to have a head start. 20Deloitte’s corporate development survey, fifth edition Next steps Actions for leaders to consider include: 1. Take a hard look at the corporate portfolio—from an outsider’s perspective—and identify any assets that could be viewed as underperforming or as a poor fit. What exit strategies are in place—or could be put in motion if necessary? If there is inherent value in keeping the pieces of the business together rather than splitting them up, management should have a viewpoint and detailed analysis to support its claims, which can quickly be pulled out and dusted off if and when the activists come calling. 2. Strengthen the M&A strategy, making sure there is an internal and external communications plan that ensures active transactions are being shown to your company. For proprietary deal flow, look at likely acquisition targets, know why your company is or is not planning to pur - sue them. Additionally, make sure your team knows what deals are happening and what your company has been invited to bid; a management team that is missing opportunities to look at transactions in the market may be viewed as being out of touch with the market. 3. Monitor market activity to make sure you know your shareholders and any changes in mix or behavior. Furthermore, know what is happening with your peers: Are any dealing with activists? If so, what shareholder activism strategies are being employed, and how would your company cope with a similar approach? If activism is a concern, be ready to define your value proposition so you can respond promptly with a fact-based viewpoint on short- and long-term value. 21Corporate development strategy: Thriving in your business ecosystem DAVID E. I. PYOTT Former chairman and CEO, Allergan Plc David Pyott is the former chairman and CEO of Allergan, where he was at the helm for 17 years. He successfully defended his company against a hostile takeover attempt, and in the process, sold the company to a friendly bid by Actavis, which subsequently renamed itself Allergan. Sriram Prakash, Deloitte’s M&A Insights lead, caught up with Pyott during the summer of 2015. In this conversation, Pyott reflects on the high and low points of the takeover battle and offers words of wisdom on how companies can effectively defend themselves against hostile attempts. Deloitte: You led Allergan through an intense hostile takeover attempt in 2014 by an activist investor, Bill Ackman of Pershing Square, who teamed up with a competitor in your industry, Valeant. How did you plan your defense? DP: The bid was an extremely unusual combination between Valeant and Bill Ackman, and that meant they could attack from two different points. In particular, Bill Ackman, as an investor, could say things that a public company’s CEO would probably not dare to say. He used the media extensively to his advantage. We realized pretty quickly we had to be prepared for the worst. It was a case of get your helmet on and assume that every tactic will be used. By the third day, I took a decision that as corporate executives, we needed to divide and conquer. Over the subsequent eight months, I spent probably 96 percent of my time dealing with the raiders, and two of my top executives—the president of the company and the head of R&D—spent about 85 percent of their time running the business. It was a matter of focus and concentration. The other angle was the internal stakeholders. In such a well-publicized, vicious fight that lasted months and months, the employees potentially could have been extremely distracted. So I reached out to them to say, “Please, if you spend all your days reading the press or watching TV, we will fail. So please do not do that; instead do your jobs to the very best of your abilities.” We also made sure that both the management and the board understood that they had to be extremely careful with emails because of American-style litigation. We took extreme measures to protect our data and IT systems from external incursions. Obviously, a large part of my time, probably 50 percent, was spent visiting the investment community. If you don’t take really good care of the funds that own most of your stock, I would say your strategy is misguided. Deloitte: There was a lot of pressure, not only from the media but also from analysts, saying the company should take the offer from Valeant. Did you have moments of doubt during those times? DP: Actually, no. I don’t say that just based on my own personal point of view, but it is based on analyses by the two banks we had hired. We were ramping up our performance—both in sales and as well as our earnings per share—due to our cost-cutting programs, and they kept re-running the valuation models. We had the fortitude to stick to our guns because we realized that the longer we held on, the more we could improve our results. 22Deloitte’s corporate development survey, fifth edition The day Pershing Square started buying stock in Allergan, the company was worth 37 billion. The first bid from Valeant was for roughly 48 billion. We ended up accepting a bid that was both cash and stock from Actavis for 66 billion. And because the market liked the transaction, on the day of close, it was actually 71 billion. We proved we were actually able to accelerate sales and deliver cost savings, and showed that playing the long game was best for all of Allergan’s stockholders. Deloitte: Do you think all CEOs and boards should be prepared for a battle like this? DP: M&A activity is pretty much at a record level currently in 2015, driven by waves of cheap money, as well as investors appropriately looking for returns. So, I think no matter how big the company, any board of directors, any management team should assume there could be a knock on the door, either from a hostile strategic party, or an activist, or somebody who just wants to create change and pressure for better returns. No one is spared. Deloitte: And what advice do you give those who face them? First one is to ask yourself: “How do we prepare?” It starts with having a good list of outside advisors; hopefully people you’ve worked really hard with before. You also want to have a clear idea of how you’d move from day zero through the next couple of weeks. Second, and more important, is the strategic viewpoint. It’s incumbent upon a board to say: “If we were that critical outside party—whether it’s an activist, or an unhappy investor, or an acquirer—how would we look at ourselves?” There are a few basic questions within that: Are there parts of the business that a third party could say don’t belong to the portfolio? Are there underperforming assets? Is there excess real estate? Has the company done a good enough job on cost management? A lot of that can be done in advance. Deloitte: The threat of outside agitation at times prevents companies from taking risks in M&A. How can large companies tap into the innovation ecosystem without exposing themselves to undue criticism? DP: I think it very much depends on the state of the market and the clarity around the technology. Sometimes, we’ve been willing to go very early and take enormous risks because we thought the technology was good and the payoff was large. On other occasions, we’d rather just watch and wait— and pay up if it works. A good example is where we had a start-up company with a new drug delivery technology that could deliver drugs to the back of the eye. Allergan was an early-stage investor in this start-up, and we could’ve bought the whole company for 20 million at the time. Instead, we waited, and once the tests came through two years later that showed the delivery system really worked, we paid 220 million. Some people asked if I was upset, and I said, “No, I’m delighted” We were not an expert in that particular field of technology, so we were willing to wait and pay up. And I’m happy to say that product is embedded inside approved drugs now. The biggest thing in all companies is not only to nurture the successful investments, but also to be able to say, “This program just isn’t delivering,” whether it’s taking too long or the financial returns no longer make sense, or just plain “it doesn’t work.” And of course, it’s very hard for people within teams to admit that it doesn’t work. It requires really good oversight by senior management, and that means focus—which gets harder the more investments you have. 23Corporate development strategy: Thriving in your business ecosystem Investor relations Corporate development’s hidden asset AREFULLY negotiating a deal, only to development executives say that IR is very Cwatch its announcement tank the com- involved in deal deliberations (39 percent state pany’s stock, is every corporate development IR is not involved at all). Even fewer (10 per- executive’s nightmare. Yet, as the persistent cent) involve IR before a target is approached; increase in shareholder activism shows, the majority (80 percent) involve IR aer ft today’s investors have strong opinions and the approach, but before the announcement. are not afraid to share them. In this environ- Perhaps not surprisingly, a similarly small ment, aligning with shareholders may end up proportion (20 percent) say IR is critical to being nearly as important as coming to terms achieving deal targets (figure 11). with the target, when it comes to executing a Overall, corporate development execu- successful deal. tives mainly see IR as a corporate mouthpiece, So how can companies avoid post-deal rather than a business partner, and may be surprises? The answer lies in creating a robust underutilizing an important resource. Close to feedback loop with investors, from under- half consider its primary role to center around standing and aligning with their priorities to releasing information and answering questions considering their investment objectives in the from shareholders; fewer than 25 percent see deal-making process and proactively shar- it providing an advisory function or critically ing the right information at the right time. evaluating a deal from an investor perspective However, Deloitte’s Corporate Development (figure 12). Survey suggests that dealmakers are underuti- Yet, to the extent these trends hold sway, lizing the employees who are best positioned companies are missing out on opportunities to create this loop: investor relations (IR) both to give and get information through IR. professionals. On the giving side, closer connections between According to Deloitte’s survey, IR teams IR and dealmakers can allow IR professionals are usually pulled into the deal process fairly to fully understand transactions so that they late in the game. Only 20 percent of corporate are equipped to satisfy investors’ information Figure 11. Importance of effective investor relations achieving deal targets, by company revenue 1 billion+ 16% 43% 41% Less than 1 billion 33% 43% 24% All respondents 20% 43% 37% Very important Somewhat important Not important Calculated on a base of respondents at publicly traded companies (N=190). Graphic: Deloitte University Press DUPress.com 24Deloitte’s corporate development survey, fifth edition Figure 12. Most important roles of investor relations in M&A transactions Preparing management and the board for investor meetings 14% Critically evaluating the investment thesis from an investor’s 17% point of view As advisor to management and deal team, providing 23% perspective on likely market reaction Preparing investor information and presentations 46% Communicating the key investment considerations to 47% the market Managing investor and analyst relationships and questions 49% Graphic: Deloitte University Press DUPress.com requirements and build investor confidence in trusted proxy for senior management,” noted 7 a deal or strategy. On the receiving side, com- Charles Triano, SVP of IR for Pfizer. “In panies can gain valuable insight into investor order to gain that kind of credibility and trust sentiment by elevating IR to a more consulta- externally, IR needs to have a strong standing tive role that becomes involved earlier in the internally, starting with senior leaders who deal process. Confidentiality is always of para- understand and value what IR does.” mount importance in M&A, but the decision When relationships between dealmakers of when to bring IR under the tent should be and IR are solid, the announcement of major evaluated relative to the value IR can bring in shifts such as a transaction can be much more helping to communicate overall M&A strategy, successful. For one, the IR function at Pfizer shape the investment the- sis, understand and assuage investor concerns, provide a Overall, corporate development viewpoint on possible market reaction, and develop a executives mainly see IR as a strategy to build market con- fidence so that the full value corporate mouthpiece, rather than of the deal is reflected in the acquirer’s stock price. a business partner, and may be Last year, Deloitte inter- 6 viewed IR leaders from underutilizing an important resource. companies known for leading practices in IR, as designated by the Institutional Investor magazine. At these leading organizations, IR has a seat at the table from helps leadership see how analysts and share- the earliest stages of deal activity, and regularly holders might react to news of a transaction, helps dealmakers consider the viewpoints and based on their ongoing conversation with likely reactions of shareholders to various ele- those parties. Further, “including IR in those ments of transactions. discussions also provides that deeper level of “At the highest level of effectiveness, the IR understanding that helps us to communicate group in a large company needs to be viewed the change to the investment community,” by the investment community as a very good, according to Triano. 25Corporate development strategy: Thriving in your business ecosystem To be sure, the cadence of IR’s role varies by machines”—companies that execute three or company size and deal experience, as well as more transactions a year—are the least likely to by size and industry. In general, the larger and provide post-acquisition updates, with about a more experience a company has with deals, the third saying they never oer t ff hem. That’s likely less likely IR is to have a prominent role. Only due to the fact that they’ve done a good job about 16 percent of executives with frequent priming investors for a series of oen sm ft all or dealmakers say that IR is very involved in bolt-on acquisitions, and have listened to them internal M&A deliberations, compared with 24 enough to know what is—and what isn’t—sur- percent at less frequent dealmakers. Similarly, prising to them. dealmakers at large companies (1 billion Getting the right message out at the right plus in revenues) are half as likely as their time is essential for a company to effectively small-company colleagues to consider IR very get credit for the value embedded in a deal. important to achieving deal targets. However, tuning your communication strategy es Th e data suggest that large and frequent to investor desires takes more than simply put- dealmakers may have the furthest to go in fully ting a mouthpiece in place; it takes thoughtful utilizing all that IR has to oer ff . We believe that two-way partnership and a new level of respect simply providing investors more information for those who know shareholders best. is not always the solution. Paradoxically, “deal Next steps Actions for leaders to consider include: 1. Take a hard look at when IR gets involved in the deal-making process. Is there value for your company in having it join in earlier? What are the downsides, if any, to including it in key meet- ings about deal strategy and any specific transactions on the horizon? 2. Consider developing a team of IR professionals who have diverse experience with deals to gain a better understanding of how shareholders formulate their agendas. A dream team would include members with strong deal experience, who know the company and industry well, as well as oth- ers who have seen deals from an outsider’s view—for example, a Wall Street securities analyst or investment banker. 3. Assess which elements of a feedback loop with shareholders are in place and which may be miss- ing. Step one is oen t ft o share the company’s broad deal strategy with them—for example, “We’ve earmarked 1 billion for acquisitions this year, with a primary goal of expanding internationally.” As IR brings back reactions to this general news, dealmakers can then use it to inform specific transactions, which IR can then communicate back to shareholders with specific information about how their concerns are being addressed. 26Deloitte’s corporate development survey, fifth edition Appendix Profile of survey respondents Figure 13. Respondent company revenue HIS survey polled professionals involved Tin corporate development decisions at their organizations. It was conducted online during August to September 2015, and was 17% completed by 357 respondents. 10 billion+ Thirty-one percent were heads of corporate development and another 14 percent were cor- 10% porate development executives or staff (figure 5 billion to 50% 10 billion 13). In addition, 9 percent of respondents were 1 billion CEOs or presidents and 11 percent were CFOs. e r Th emainder included board directors, heads 23% of business units or divisions, and executives 1 billion to in finance, strategy, tax, accounting, and other 5 billion functions involved in M&A. Twenty-seven percent of the professionals surveyed were from companies with annual revenues of over 5 billion, with 23 percent Graphic: Deloitte University Press DUPress.com having revenues of 1 billion to 5 billion (figure 14). There was strong representation from both public companies (53 percent) and private companies (47 percent). Respondents belonged to a wide cross-section of industries (figure 15). 27Corporate development strategy: Thriving in your business ecosystem Figure 14. Respondent role 9% 25% 11% 4% 6% 31% 4% 10% CFO CEO/president Corporate development/M&A executive Head of corporate development/M&A Controller/finance Corporate development/M&A staff Other Board member Graphic: Deloitte University Press DUPress.com Figure 15. Respondent industry 17% 13% 11% 32% 20% 6% Consumer and industrial products Business and professional services Financial services Energy and resources Technology, media, and telecommunications Life sciences and health care Graphic: Deloitte University Press DUPress.com 28Deloitte’s corporate development survey, fifth edition Endnotes 1. CA Technologies, “CA Technologies officially effective-ir-becoming-a-trusted-proxy-for- opens new CA Silicon Valley technology management/; Deloitte module of CFO Journal, center,” press release, October 7, 2013, http:// Wall Street Journal, “Effective IR: Maintain- www.ca.com/us/news/press-releases/na/2013/ ing a responsive dialogue with the Street,” ca-technologies-officially-opens-new-ca- September 2, 2014, http://deloitte.wsj.com/ silicon-valley-technology-center.aspx. cfo/2014/09/02/effective-ir-maintaining-a- responsive-dialogue-with-the-street/; Deloitte 2. Paul L. Choi, e e Th volving response to module of CFO Journal, Wall Street Journal, shareholder activism, Sidley Perspectives on “Effective IR: Building trust with clarity, candor M&A and Corporate Governance, August and consistency, July 9, 2014, http://deloitte. 2015, Sidley Austin LLP, http://www.sidley. wsj.com/cfo/2014/07/09/effective-ir-building- com//media/update%20pdfs/2015/08/ trust-with-clarity-candor-and-consistency/; sidley%20perspectives_newsletter. Deloitte module of CFO Journal, Wall Street 3. Activist Insight Online, “Activism Journal, “Effective IR: Know your audience Monthly Lite,” November 2015, http:// and ‘tell it like it is’,” September 23, 2014, http:// activistinsight.com/research/Activism%20 deloitte.wsj.com/cfo/2014/09/23/effective-ir- Monthly%20Lite%20November%20 know-your-audience-and-tell-it-like-it-is/; 2015_171115041314.pdf. Deloitte module of CFO Journal, Wall Street Journal, “Effective IR: Engage with investors, 4. o Th mson Financial, as of December 14, 2015. get honest feedback, August 13, 2014, http:// 5. o Th mson Financial, as of December 7, 2015. deloitte.wsj.com/cfo/2014/08/13/effective-ir- 6. Deloitte module of CFO Journal and Risk engage-with-investors-get-honest-feedback/. & Compliance Journal, Wall Street Journal, 7. Deloitte module of CFO Journal, Wall “Effective IR: Becoming a trusted proxy for Street Journal, “Effective IR: Becoming management,” October 21, 2014, http://deloitte. a trusted proxy for management.” wsj.com/riskandcompliance/2014/11/06/ 29Corporate development strategy: Thriving in your business ecosystem Contacts Chris Ruggeri Principal Deloitte Transactions and Business Analytics LLP +1 212 436 4626 cruggerideloitte.com Sara Elinson Transaction and Modeling Advisory leader Principal Deloitte Transactions and Business Analytics LLP +1 212 436 5665 selinsondeloitte.com Ken Kirschner Technology, Media & Telecommunications M&A Transaction Services leader Partner Deloitte & Touche LLP +1 212 436 2365 kkirschnerdeloitte.com Tony Blanchard Managing director Deloitte Corporate Finance LLC +1 313 396 3738 anblancharddeloitte.com 30 Follow DU_Press Sign up for Deloitte University Press updates at DUPress.com. About Deloitte University Press Deloitte University Press publishes original articles, reports and periodicals that provide insights for businesses, the public sector and NGOs. Our goal is to draw upon research and experience from throughout our professional services organization, and that of coauthors in academia and business, to advance the conversation on a broad spectrum of topics of interest to executives and government leaders. Deloitte University Press is an imprint of Deloitte Development LLC. About this publication This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively the “Deloitte Network”) is, by means of this publication, rendering professional advice or services. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s more than 200,000 professionals are committed to becoming the standard of excellence. © 2016. For information, contact Deloitte Touche Tohmatsu Limited.
Website URL
Comment