Analysis by Towers Perrin Shows Changing Nature of M&A Process
TORONTO, Nov. 3 /CNW/ - While the volume of mergers and acquisitions may
have declined, the phenomenon of "Express M&A" has arrived. And it is not only
companies in the financial services sector that are making opportunistic
acquisitions in light of the global credit turmoil. Express M&A is taking all
sectors by storm, for both domestic deals in Canada and acquisitions by
multinationals - triggering a fundamental reappraisal of how deals are carried
out.
According to analysis(*) of worldwide deals in 2007 and 2008 by global
professional services firm, Towers Perrin, transactions are being completed
almost twice as quickly as they were a year ago. The average duration from
announcement to completion has plummeted from 142 days in 2007 to just 80 days
in 2008. This figure is likely to fall further as more deals are hastily
wrapped up before the year end.
"Market turmoil has conjured up the concept of Express M&A, a high-speed
deal process affecting all sectors, including Canada's commodity and energy
industries where multinationals are looking to acquire assets at bargain
basement prices. But increased speed brings increased risk to these deals,"
said Eric D'Amours, head of M&A and Restructuring at Towers Perrin in Canada.
"For example, we are seeing significant elements of due diligence
effectively being postponed until after completion. The concept of 'seize the
day' is changing conventional M&A processes as the threat of future potential
surprises pales in comparison to the scale of savings or strategic value that
might be achieved."
Towers Perrin is working with a number of leadership teams to help them
get to grips with the speed of change and choose the key actions from the deal
timetable. Critical elements of the deal process - from leadership retention
to practical execution planning - are occurring at a much faster rate, while
considerations such as rewards analysis and cultural integration are being
postponed until after completion. The firm's advice to acquisitive companies
is to build into the financials some margins for the unexpected.
D'Amours says: "The period from deal announcement to completion in the
last few months has contracted significantly. Safeguarding a company's future
via sale or restructuring has become a lightning priority in the face of
deteriorating market conditions. Express M&A is here to stay for some months
yet, particularly as those with liquidity snap up bargains. But acquirers
would do well to remember that postponing some of the hard work on due
diligence and integration planning will mean more focus, not less, will be
required when the ink is dry if the deal is to be successful in the
long-term."
"Coping with the speed of M&A could well be one of the enduring legacies
of the current turmoil. Working through deals with clients at this time, we
believe it is important to try to draw lessons from our experience of the new
challenges presented by Express M&A."
Deal Speed Analysis
Towers Perrin examined all deals with a value greater than US$2 billon
(more than 500 deals) announced since the beginning of January 2007 and before
the end of September 2008. The firm examined actual deal announcement dates
and actual deal close dates. For current deals yet to close, where market
evidence exists that they will close before the year end, expected deal close
dates were used.
Changes to M&A deal process
"Traditional" deals still exist; for these, the usual M&A approaches are,
and should continue to be, followed. With Express M&A, deal processes have
changed dramatically and are being truncated to meet commercial and market
necessity. Due diligence in the pre-announcement phase is being replaced by a
post-deal fact-finding process to establish exactly what has been bought.
Towers Perrin recommends three priorities from the lengthy list typical
of 'traditional' M&A best practices to ensure that employees are on board and
the deal has the best possible start for success:- Tap the talent. Make sure you know who you want, fast. Pay them well,
find out what other incentives they need, and sign them up. The value
of the new business will drop without the right people on board.
- Show and tell. Don't keep the strategy to yourself. From the start,
be clear about your aims for the business and how it's going to work.
- Manage expectations. Not all answers will be available on day 1.
Indeed, more uncertainty than usual will exist on change of control.
Ensure all stakeholders are aware that time will be required after
the deal close to plan the integration details. So, buy yourself some
time.(*) Towers Perrin's analysis was based on data from Mergermarket. All deals
greater than US$2 billion in size and announced between January 1, 2007 and
September 30, 2008 were examined. The average duration between the date of
announcement to the market and completion date are weighted by the size of the
deal.
About Towers Perrin
Towers Perrin is a global professional services firm that helps
organizations improve performance through effective people, risk and financial
management, and assists over 300 multinationals a year with their Mergers &
Acquisitions. The firm provides innovative solutions in the areas of human
capital strategy, program design and management, and in the areas of risk and
capital management, insurance and reinsurance intermediary services, and
actuarial consulting. Towers Perrin has offices and alliance partners in the
United States, Canada, Europe, Asia, Latin America, South Africa, Australia
and New Zealand. More information is available at www.towersperrin.com.
For further information: Keri Alletson, (416) 960-4493,
keri.alletson@towersperrin.com
