Making a big deal of your transactions
By Ann Mayeen D. Magno
First Published in Business World (9/30/ 2013)
These are but some of the drivers that management considers when deciding to embark on a transaction for the company. Since transactions never happen in a vacuum, such decisions resonate across the whole organization — touching not only the companies, divisions, and people who are directly undertaking it, but also the stakeholders within and outside the organization.
Toward Transaction Excellence — EY’s global study of current practices in effective corporate development, surveyed 200 transaction executives from major global companies. The survey shows that transaction success depends significantly on the level of attention paid to three areas: (1) strategic alignment, (2) formalized deal process and (3) strong internal relationships. These three areas, when properly considered and implemented, can help management avoid the common pitfalls in a transaction, and in so doing contribute to optimizing transaction implementation and increasing satisfaction with transaction results.
So, are you thinking of a transaction? If you are, you need to give it very careful attention and consideration. The EY report describes a transaction as “one of the most complex and risky business propositions management can undertake. It is a situation where the potential for error is high, in an environment where speed is critical, resources are limited, and pressure for quick results is great.” Any organization engaging or planning to engage in a transaction must take steps to determine that their acquisition strategies are sound and the plans are clearly laid out and communicated to the right audience.
Have you carefully thought out your acquisition strategy? Whether the strategy is to acquire, form a joint venture, merge, partner, divest, close or any combination thereof, management should have a definite plan of engagement, and the willingness and capability to invest in the right resources to achieve it. It must consider the acquisition strategy within the context of industry trends, the organization and its business strategy. It should be focused on executing the right deals at the right time. Industry events such as improving technologies, shifting customer behavior, new regulations and competitor adaptation to industry changes, among others, represent challenges and opportunities that should constantly be considered for potential impact as management forms and executes the acquisition strategy. Likewise, deliberate, fact-based assessments must always be made on the ongoing aspects of the organization’s operations and capabilities to understand how planned transactions will impact them. Transaction executives agree that making acquisition strategy consistent with business strategy helps management ensure that transactions align with or enhance current business strategies, and support potential corrections in strategy, as needed.
Do you know how to get the information you need to assess and execute a transaction? Transactions between two or more organizations are made up of many moving parts. Hence, a systematic body of activities is required to support the analysis and execution of the transactions. Given the complex nature of organizations, various experts are generally tapped to help the organization understand the target industry, assess the target organization’s operations and financial condition, organize, analyze and present the information, and execute the plans of action. Formalizing these analyses, and the process of planning through the formulation of standard transaction processes and reports, is a good way to manage the flow and presentation of information. Further, having a consistent approach to analysis and reporting helps to make each succeeding transaction more efficient as the organization and its experts become more aligned in their mindsets and gain confidence in each other’s work.
In particular, due diligence and valuation are the top two processes that transaction executives formalize. Working with experts who can align the due diligence and valuation processes and reports with the organization’s acquisition strategy helps ensure that the organization gets relevant, forward-looking and transaction-centric insights on a timely basis. These insights can be presented in reports that are already vetted by the organization and its experts so as to be familiar, concise, and consistent with the organization’s internal standards. Formalizing essential transaction processes and making them consistent, repeatable and open to continuous improvement helps organizations achieve significantly higher transaction satisfaction, both in terms of number and timeliness of deals closed, and effective integration.
Are your stakeholders aboard the transaction train? It is not easy to drive a transaction. When properly done, transactions can help an organization fast-track the fine-tuning of its business strategy as it prepares to face a more challenging future. The reverse can make the transaction a burden on the participants and put unplanned financial and operational pressure on the organization. Management must be able to convince these participants of the veracity of its decision to embark on a transaction.
Top management must make the initial assessment on the points in favor of embarking on a transaction, and then discuss the transaction plan with a strong core unit which will have the responsibility for actually studying, planning and executing it. Effective transaction executives do not force decisions on their core teams. They interact closely with their core team, generally composed of people from finance, accounting, and treasury, who can effectively work together with transaction executives to gain insight into the objectives and challenges behind the decision to enter into a transaction. In the end, the core team must agree that the “story” makes sense, especially from their point of view. As the transaction moves forward, this core team then brings in more insiders, people with the relevant functional knowledge or experience, to give more details to the plans. The challenge is to find the right participants who will ask the right questions and know how to find objective answers. Organizations that support transaction executives as they build strong relationships with the core transaction teams always find transaction implementation more efficient, and transaction results more satisfying.
And finally, do you have the right leaders for your transactions? The EY Study and supporting research gives the top 10 expectations of effective transaction executives:
• Focus on high-impact opportunities;
• Operate as highly effective leaders;
• Embrace and initiate change;
• Possess a broad range of technical skills and experience;
• Know how to build and leverage strong relationships;
• Set goals, establish realistic expectations and measure results;
• Collaborate, communicate and listen;
• Document and share processes;
• Are fully accountable within defined responsibilities; and
• Take responsibility for training and development.
In the end, despite good targets in good industries, a transaction can only be as good as the persons who lead it. With the right people, the organization will find that having the right deal at the right time can be a realistic goal.
Ann Mayeen D. Magno is a senior director of SGV & Co.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.