World Monitor Magazine WM_Energy_ 2019_web | Page 56

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survey believed they could have created more value by engaging
more closely with the management team of the unit to be sold.
like the other side — and
beware of value-destroying biases.
6 Think
One of the keys to a successful acquisition, as noted above,
is to draw up a value creation plan early in the process that
is broad and detailed. A successful sale often depends on the
ability to anticipate well in advance how any buyer is likely to
think about creating value from its acquisition.
But this defensive approach, designed to uncover and preempt
issues that an acquirer might use to argue for a lower price,
is not enough. Successful sellers think offensively. There are
some pivotal questions to ask yourself: Can we anticipate
some of the actions a buyer might take to generate value from
the purchase? Can we quantify them? And can we get them
into the business plan so that we can extract some of the value
as the seller, as opposed to leaving it all on the table for the
buyer?
This makes it vital to ensure that key talent is incentivized to
work on divestments, rather than just being deployed on the
divisions to be retained, because it can play an important part
in determining the success of a transaction.
clear about how you define
7 Be success.
As noted at the outset, our research shows that most
people think their deals create value, but financial markets
frequently disagree. One possible explanation for this apparent
contradiction may be that different stakeholders measure
success in different ways.
Acquirers tend to judge the success of a deal against the
targets set for the business that has been purchased: typically,
synergy gains and revenue growth. These targets may well
be met or even exceeded, encouraging deal makers to believe
they have created value.
But this sort of success can come at a price. What often
happens is that all the focus and attention goes to delivering
the synergies on which the deal was predicated — and quite
often those targets are exceeded — but the existing business
suffers as a consequence of all the best people being excited
about the acquisition and wanting to get involved in it.
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As a result, the acquired business might exceed its targets, while
the combined company performs relatively disappointingly.
Thus, overall shareholder value doesn’t increase as much as
people expect.
This could also help to explain why 61 percent of respondents
in our study believed the last deal created value, while two
years later, 53 percent of acquirers had underperformed their
industry benchmark. If investors and management are using
different definitions of success, both verdicts could be correct.
The key to avoiding such disagreements is, quite simply, to
make sure everyone is comparing apples with apples.
More importantly, though, a far sharper focus on the habits
of highly accomplished deal makers could ensure success,
however it is measured.
Key findings
Stay true to strategic intent
• Bear in mind that strategic planning beats opportunism, but
strategic planning plus an established execution plan is best
of all.
• Concentrate on value creation well before signing. Use due
diligence to test your value creation hypothesis, and stay
focused on your value creation plan throughout the deal.
Be clear on all elements of a value creation plan
• Create a broad value creation plan that covers all relevant
aspects of the business to be acquired or sold.
• Know that investment in integration pays big dividends —
those that spend more are more likely to create value.
• Anticipate what will be in your counterpart’s value creation
plan and try to capture some of that value for yourself.
• Be clear about how you will measure success and how your
shareholders will measure it.
Put culture at the heart of a deal
• Pay close attention to people, corporate culture, and
intangibles; talent engagement is crucial.
Author Profiles:
• Malcolm Lloyd is PwC’s global, EMEA, and Spain deals
practice leader. Based in Madrid, he is a partner with PwC
Spain. He is a member of PwC Spain’s executive board, EMEA
executive team and on the global advisory leadership team.
• Hein Marais is the EMEA value creation in deals leader. He
advises clients on how to create value through the buy and sell
side of M&A. Based in London, he is a partner with PwC UK.
Source: by Strategy&