Even Hollywood screenwriters know mergers and acquisitions have become synonymous with Wall Street investment banks and white-shoe law firms. While third-party service providers can bring immense experiential value to the table, they typically lack the deep institutional knowledge of an in-house M&A corporate development team.
Even worse, these businesses operate under an incentive model that favors lengthy and complex deal-making versus seamless integration and strategic alignment. Not all companies have the resources — or need — for a corporate development team. However, corporate development in M&A can absolutely benefit enterprise-level companies.
The Advantages of Going In-House
You don’t need to retain the services of a flashy advisory firm to conduct your next M&A deal. An in-house corporate development team can steer you through the M&A process while retaining a greater understanding of your company’s specific goals.
Corporate development teams should be seen as long-term investments. You can count on your team for more than M&A deals. A competent corporate development team can handle divestitures, joint ventures, internal partnerships, and other functions that add to your business’s growth strategy.
Leadership Recruitment Options
As you assemble your in-house corporate development team, you’ll be faced with the choice of recruiting an internal or external candidate for the position. Both approaches have their merits. Your decision will ultimately depend on your specific needs.
Bringing in a candidate with decades of experience in investment or private equity banking can give you a significant competitive edge. Not only will you tap into their extensive knowledge and unique insights into the world of M&A deal-making, but you’ll also gain access to their entire network.
Promoting an internal candidate to this position involves a certain amount of risk. Due to their inexperience, you may miss out on certain opportunities and incur inefficiencies that an external candidate could side-step.
However, internal candidates possess a deep, nuts-and-bolts knowledge of your company and how it functions. This can help facilitate valuable insights regarding your M&A strategy, team building, and cross-departmental collaboration.
What’s Your Strategy?
M&A deals are expensive and prone to failure. Roughly 70% to 90% of all M&A deals fail. In 2022, the average cost of an M&A deal totaled $68 million. Creating a solid strategy can help catapult you into the coveted 10% to 30% of successful M&A deals.
Define Your Target
One of the leading causes of M&A deal failure is a lack of strategic thinking. C-suite staff may undertake a big deal with overly optimistic expectations, or as a panacea for anemic growth. The sheer size of a deal — and the seemingly limitless possibilities entailed therein — sometimes blinds stakeholders.
To avoid falling into these traps, it’s crucial to first define the specific type of deal you want to make:
- Would your company benefit from a horizontal or vertical merger?
- Do you need to expand your geographic reach or your product line?
- Are you hoping to attain intellectual property or access to institutional processes?
Narrowing down your target acquisitions is a crucial step in identifying potentially profitable deals. Once you’ve selected your core criteria, it’s time to drill down deeper using a checklist.
Create a Checklist
Now that you’ve defined your target, it’s time to create a checklist of your non-negotiables, nice-to-have, and must-have features. Checklists take the guesswork out of deal-making. They can also serve as a splash of cold water for overly exuberant attitudes.
Items to include on your checklist include:
- Core integrations
- Potential synergies
- Product acquisitions
- Cultural fit components
Remember, the purpose of defining your target and creating a checklist is to facilitate the creation of a shortlist of companies to acquire.
Build Your List of Target Acquisitions
One of the biggest mistakes you can make when conducting an M&A deal is to identify your target company first and then create reasons for acquiring it. This backward-facing process creates poor-value deals and mismatched synergies. It is crucial to engage in clear-headed assessments of the risks and benefits involved in any acquisition.
Fortunately, if you’ve followed the steps outlined above, you should have a good idea of what type of company will create the most value for your business. At this point, you’ll want your team to compile a list of companies that fit your criteria.
At this stage in the process, you don’t need to worry if the companies on your list are actively soliciting an M&A deal. As part of the buy-side team, your mission is to enumerate the benefits of a successful transaction for both parties. A good mindset to adopt is to think of every business as being ready to sell — at the right price, of course.
At the same time, it’s important not to get too excited about any one particular company. Multiple options will strengthen your position and allow you to negotiate more effectively. Emotions and ego often play a surprisingly large role in M&A deals. Remaining as dispassionate as possible will work to your benefit.
Building a Corporate Development Team
Before you begin building your team, defining what M&A corporate development competencies you’ll require is essential. This team will typically consist of individuals from your legal, finance, human resources, and sales teams. You’ll likely want input from other departments as well, such as operations and research and development.
You may also choose to round out your team with a few external hires. Bringing on a knowledgeable M&A professional will grant your team access to valuable experience. Ultimately, your industry and the nature of the deal will play into which people you choose to invite onto your corporate development team.
External hires can bring valuable skills and expertise to the table. However, most of your recruiting should be done in-house for budgetary reasons and to take advantage of your employees’ institutional knowledge. As you build out your team, it’s essential to weigh their current responsibilities against the additional duties they’ll take on as part of a corporate development team.
Overbalancing your current staff can lead to burnout and poor performance. Consider requesting that your team members be taken off some or all of their day-to-day duties while they engage in corporate development work. Many companies don’t need a full-time corporate development team. Instead, you might ask these employees to engage with these tasks on an ongoing, temporary basis.
An experienced M&A analyst can help you select the right valuation approach for your deal. Overvaluation is routinely cited as one of the top reasons why M&A deals fail. Many otherwise profitable deals fail due to over-estimated synergies and irrational exuberance that manifests as the bidder’s curse.
M&A analysts act as a check on poor valuation models. These experts can help keep your team on track by providing dispassionate analysis and pricing models.
M&A Project Manager
Project managers are the unsung heroes of M&A deal-making. They’re the glue that holds it all together from beginning to end. From coordinating disparate activities and teams to ensuring that key performance indicators are met, you’ll need a competent and experienced project manager to ensure smooth sailing.
Get help managing your targets
Augment your corporate development team with a complete M&A software management tool. Devensoft streamlines pipeline management by letting you track all of your targets in one place.
You can configure Devensoft to meet your company’s needs with our customizable software. Score and rank target companies, and use our advanced reports and analytics features to build a picture perfect deal.
Schedule a demo today to learn how Devensoft can enhance your corporate development team’s efficiency.