Forty-six percent of executives predict there will be more mergers and acquisitions as well as strategic alliance activity over the next two years, according to Deloitte LLP’s third annual survey on corporate development.
Corporate boards are playing a more prominent role regarding mergers and acquisitions, the survey finds. In fact, more than 40 percent of respondents say their boards of directors are now more involved in mergers and acquisitions over the last two years, and they are even asking for more frequent, detailed updates as well as spending more time considering these transactions.
Although 54 percent of respondents at large companies, which is defined as those with at least $1 billion in annual revenues, say the greatest value boards added is based on constructive evaluation of and challenges to transaction objectives, only 31 percent of respondents from smaller companies believe the same.
Another one-third of respondents believe activist-investor activity will grow in the next year while 52 percent of respondents are putting more companies in play and 39 percent of respondents are forcing more carve-outs or breakups. Still, respondents are split regarding whether these activities would be positive or negative.
Forty percent of respondents consider mergers as the most difficult deal to accomplish, but 23 percent of respondents say joint ventures and strategic alliances are the most challenging. More than 40 percent of respondents report that their companies are more skilled at mergers than at implementing strategic alliances.
"Strategic alliances and joint ventures can be difficult transactions; nevertheless, we are seeing a notable uptick in this area," says Chris Ruggeri, principal of Deloitte Financial Advisory Services LLP. "The perception of strategic alliances is changing from a last resort to a preferred investment strategy, especially in emerging markets, and companies are learning from industries like technology and life sciences that use strategic alliances very effectively to manage risk and capital."
The survey also finds that 57 percent of respondents view the top-ranked indicator of a divestiture's success is value realization while 31 percent of respondents say it is minimal disruption to the ongoing business. Among the greatest factors that are negatively impacting value are inadequate preparation and poor quality information at 28 percent and the complexity of carve out and separation issues at 22 percent.
"In practice, a detailed execution plan focusing on issues of importance from the potential buyer's perspective helps accelerate the process, maximize value and minimize disruption to the organization," says Kathleen Neiber, a merger and acquisition services partner with Deloitte & Touche LLP. "Well-prepared sellers will have thought through what information buyers might need, what questions they might ask and what potential issues they may raise before the process begins."