Growth from transactions 

Why should I be thinking about this?
As with emerging markets, companies should consider M&A (Merger & Acquisition) activity and joint venture strategies to extract maximum value from their current portfolio of interests.

Many mergers or acquisitions do not deliver the expected benefits. The post-acquisition integration period may take too long or disposals may not be handled in a way that gives the vendor maximum value.

Handled correctly, however, M&A and joint ventures can realize savings, reduce costs, protect market share and deliver growth.

What common problems may I face when tackling this issue?

• Getting maximum value from the merger or acquisition. You should be extracting maximum value. KPMG research in 2006 ('The Morning After') showed that the deal price included the value of almost half the expected benefits. If these are not realized, the purchaser cannot likely claim to have gotten the full value of what was paid for, let alone extract additional value.
• Getting maximum value for a disposal. Beware of value leakage. Although an ideal purchaser may have been found – and an attractive sale price agreed – a lot can happen before the deal is complete. Further KPMG research ('Increasing Value from Disposals') highlighted that value can leak in the interim period because of a lack of proper preparation, unforeseen accounting issues or completion account disputes.

In the recent seller’s market, higher prices have cushioned some of the impact of this value leakage. There are signs that the seller’s market is coming to an end. Companies will likely soon find this value leakage less bearable than it has been.

In both of these instances, time is a major factor.

• Mergers and acquisitions — companies can take, on average, nine months to gain control of their newly acquired business and get rid of problems. During this period, value and growth opportunities are lost.
• Disposals — similarly, during a disposal, the length of time required for the process is linked to an erosion of value. Managing timescales is critical.

So what should I do?
Plan exactly how you expect to extract value from the transaction or joint venture after the deal is completed. Planning should help you identify any issues which could arise and slow the process down. Learn from private equity houses. They focus on planning and preparation, on understanding the business and being prepared for the transaction and issues which follow.

In summary
Winning the deal or completing the transaction, whether a merger, acquisition, disposal or joint venture, is only half the job. After making the deal, the chief executive should be worried about how to realize its full value. The finance director wants early assurance on what has been bought. Celebrating the deal should only happen after the benefits are realized. Growth can be delivered in existing markets by making the most of what a company already has and squeezing every bit of value out of any deals. 

How can KPMG professionals help?
By providing advice on:

• growth from effective M&A strategy
• diminishing risk and enhancing opportunity from acquisitions
• extracting enhanced value from disposals
• seizing control and realizing value post-acquisition
• financing, refinancing and releasing capital value.