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Contents
Executive summary
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Contacts
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Chris Ruggeri
M&A Services Leader
Deloitte Financial Advisory Services LLP
Executive summary
Finance, 14%
Not confident, 8%
CFO, 12%
CEO, 7%
Marketing/Sales, 2%
External advisors, 1%
Other, 2%
Capital investment, 3%
Working capital, 4%
Discount rate, 3%
Other, 1%
Theres an old adage that although a forecast may almost always be wrong it can nevertheless be useful. Thats because
the thought process behind pulling together the forecast forces management to think about future states in a disciplined
way. While 43% of respondents stated there is no discernible pattern in their forecast errors, 26% report a bias towards
forecasts that consistently overstate expected results and 11% report a bias that tends to understate expected results
(figure 5). It is useful to understand how a companys culture and reward system might incentivize over- or underpromising when presenting business cases. The forecasting process is almost as important as the result itself, and the
majority of respondents (52%) indicate that they can live with forecast errors of 5% to 10% with only 10% finding a
forecast error of no more than 5% acceptable (figure 6).
<5%, 10%
5%<10%, 52%
10%<25%, 34%
25%<50%, 4%
Other, 1%
Stakeholders
Broad stakeholder participation in the framing process may
seem to be common sense, yet it is all too easy to bypass
this construct given how frequently organizations end
up structured in silos. The group of stakeholders needed
for good framing may involve participants outside the
immediate deal team, such as subject matter specialists
on the targets intellectual property or legal environment.
Building the principle of broad stakeholder involvement into
your framing process can improve forecast quality by helping
to identify relevant drivers of value and their interrelation
and result in a more efficient data collection effort.
Environment
Creating an environment that promotes unconstrained
thinking (as opposed to convergence or group think) is
perhaps more art than science. While this deals directly
with the culture of the company, many organizations are
starting to use innovative techniques such as improvisation
and role play to heighten the effectiveness of team
collaborations. These techniques may be used to foster a
more accepting context for creative brainstorming, even if
just used for very specific framing discussions.
Questions
Asking the right, sometimes difficult, questions is a key
ingredient of framing. When structuring a strategic
investment decision, it is crucial to understand how risks
and uncertainties may affect the outcome. One useful
question to ask stakeholders is: How could we be
wrong? This requires participants to analyze or otherwise
consider the assumptions underlying the decision and
explore how the investment might turn out differently
than expected. Using a pre-mortem question can also help
identify and frame risk factors: assume it is three years in
the future and the deal has generated much worse (or
better) returns than expected; ask the stakeholder group
to create stories that may likely result in this outcome. It
is generally easier for team members to talk about risk
factors in a hypothetical story than to speak critically of the
transaction being considered.
Other, 3%
10
Other, 7%
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Key takeaways
For some companies, forecasting is the weak link in
their M&A process, and for others it may be a source of
competitive advantage. Many companies are somewhere
in between. We are seeing increased interest in
codifying the forecast process, roles and responsibilities,
methodologies, and leading practices in M&A playbooks.
A key question for management is: could the improvement
in value creation from better deal decision-making be worth
the cost and effort of enhancing the current process?
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Perspective
JR Reagan
Leader of the Deloitte Analytics HIVE (Highly Immersive Visual Environment)
Principal, Deloitte & Touche LLP
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About the
HIVE
While analytics isnt new, were experiencing a renaissance
in the science, technology, and application of business
analytics today, which makes it hard to keep up. Many
business leaders are now facing the dilemma of how best
to quickly get up to speed on what analytics can actually
deliver in practice.
Thats where the Deloitte Analytics HIVE (Highly Immersive
Visual Environment) can help. In this physical environment,
visitors can examine the latest analytics technologies
and approaches themselves, using their own data, all in
one place. In a very short amount of time, you can learn
what might otherwise have taken months of meetings,
demonstrations, and business pitches.
Visitors are able to choose from a host of different ways to
experience analytics in the HIVE. Want a deep dive into a
particular analytics approach? An open-ended Q&A session
with our team? A guided tour of your own data? An
Analytics 101 course? We can do that and more.
The HIVE has been visited by scores of business leaders at
some of the worlds leading companies many of whom
are looking for better ways to drive real business results
from analytics. We invite anyone to visit the HIVE not
just our clients, but any organization that meets a handful
of basic criteria.
Digital advantage
Data analytics and
social media in M&A
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Digital advantage
Data analytics and
social media in M&A
Since the introduction of the computer spreadsheet
program over 30 years ago, executives have been able
to drill increasingly deeper into data to inform decisionmaking. This analytic capacity is an essential component
for almost any corporate project, and not surprisingly, it is
also a hallmark of the deal-making process. Were using
analytics on almost every deal, and in almost every stage,
from customer and vendor analysis, to pricing realignment,
and even post-merger workforce planning, says Marco
Sguazzin, principal with Deloitte Consulting LLP.
With the advent of the Big Data era, in which spreadsheet
cells can be analyzed alongside unstructured data such
as social media postings, there is now a new frontier
to be conquered: how to derive benefits from applying
more powerful analytical tools to an overflow of data
sources. From wikis, blogs, and social networking sites
to web-based tools that can tag and filter, there is no
shortage of new sources of insight. The question is how
can acquirers leverage these opportunities in a practical
way to become more effective dealmakers?
Although the long-term view of how technology may
transform M&A is still emerging, the transformative power
of technology and how it can be applied to dig for trends
and insights, influence customer decisions, improve brand
perception, foster communications and collaboration,
and enhance productivity is undeniable. The adoption
trajectory is likely to be similar to the evolution of cloud
computing, says Kathleen Neiber, partner with Deloitte &
Touche LLP. Five years ago, most executives were skeptical
due to initial perceptions that it could present security
challenges; now, cloud computing is mainstream.
Currently, about 40% of survey respondents report using
technology-driven analytics in M&A, and 17% say their
companies are considering it (figure 10). While the term
analytics can cover a variety of meanings, in the context
of deals, survey respondents say they are most often
used to scrutinize the customers and markets of target
companies. They are also used frequently to evaluate
the potential synergies of a deal, as well as the targets
workforce and compensation schemes (figure 11).
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No, 42%
Other, 2%
Other, 2%
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Price discovery
It used to be that negotiating a deal was an art form
done behind closed doors. Now its almost like a public
discussion, says Chris Ruggeri. Thats because social
media has made it easier than ever for shareholders, even
smaller minority shareholders, to coordinate with others,
giving smaller players a much bigger voice.
Due diligence
Data analytics can provide transformative insights in a
variety of ways, including searching huge volumes of
vendor agreements for cost savings, scanning intellectual
property patents for licensing opportunities, and
monitoring news feeds for market-moving changes. We
observe an increasing number of acquirers taking a more
structured approach to tracking information of customers,
competitors, vendors, etc.
Other, 3%
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Target sourcing
Crowdsourcing now exists for M&A. Companies in the
market to acquire (or be acquired) can visit crowdsourcing
sites focused on M&A, where communities suggest deals,
provide insights and perspectives on the pros and cons of
proposed deals, and vote for their favorites. The result is a
wealth of information on potential targets, feasibility of a
deal, and publics reaction.
Disclosure
Regulators are also recognizing the new communication
media as a powerful force. The SEC, for example, recently
sanctioned social media in some circumstances as a
method of disseminating public company press releases
and other market-moving information.
Collaboration in post-merger integration
The workload in post-merger integration planning
and execution can often become overwhelming, and
considerable time is spent in coordinating a multitude
of teams whose plans all need to align in direction, timing,
and execution. Social media tools, such as Deloittes M&A
Central toolset, provide an effective means for teams to
collaborate in a real-time and automated fashion on their
integration strategies and the many tasks necessary for
accelerated and efficient execution, and enhance
value creation.
Key takeaways
Although there is diversity in practice in how businesses
use data analytics and social media in M&A, adoption rates
in the very short history of the technology are high. In our
view, we have just scratched the surface of the applications
of this technology that may continue to evolve. The
SECs recent guidance approving the use of social media
as an acceptable medium for business disclosures adds
legitimacy to the technology as a business tool.
Perhaps the key takeaway is that no one is suggesting
machines replace human judgment in any stage of the
M&A process. We hear the concern about the reliability
of social media a lot, and we just remind folks that social
media is an additional source of information; its not the
source of information, says JR Reagan. Its like real-time
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Dont wait for the ink to dry. Target identification and due
diligence may be the more obvious uses for social media in
M&A, but during integration, secure social media sites can
provide efficient platforms for collaboration and coordination.
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20
15%
18%
1%
11%
10%
18%
15%
63%
49%
n 12
n 35
n 69
n 10+
n Prior to closing
n Varies
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25%
<5 deals/year
71%
29%
5+ deals/year
90%
n Yes
n No
10%
49%
25%
7%
<5 deals/year
16%
48%
29%
7%
5+ deals/year
30%
52%
13%
n Excellent
n Good
n Fair
n Poor
There are many reasons for this disconnect, but some of
the more common ones we observe in practice include:
a failure to clearly designate decision-making power;
overscheduled decision-makers who create bottlenecks;
deal team members who corrupt the decision process by
using back-channel dealings; and, conversely, plodding
and over-engineered processes that stem from misguided
attempts to keep everyone informed of every detail.
In many cases, practice can help make perfect. Companies
that are the most active acquirers tend to invest more
deeply than others in creating the right infrastructure and
policies around deal flow, according to the survey, and
are also more likely to report having an efficient process.
The probability of success increases with practice, says
Geoffrey Helt. More times at bat enable a corporate
development team to not only build vital relationships, but
also to get smart about deal economics and tighten the
strategy required to win in the future. In fact, companies
that complete five or more deals per year were 27% more
likely to have a well-defined decision process than those
with lower deal volumes, and are almost twice as likely to
consider that process highly efficient.
4%
34%
57%
n 12
n 35
n 610
n 10+
9%
36%
32%
16%
n Weekly
n Monthly
n Quarterly
n Ad hoc
n Other
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3%
3%
All responses
54%
12%
37%
11%
8%
9%
12%
6%
<5 deals/year
12%
63%
10%
7%
6%
9%
5+ deals/year
19%
33%
n All deals
n <$10M
n $10M<$25M
n $25M<$50M
n $50M<$250M
n Other
n $250M+
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14%
14%
18%
22%
14%
4%
8%
4%
40%
20%
29%
n Advise stakeholders
n Influence/align stakeholders
n Manage approval process
n Decision maker
n Other
7%
3%
28%
17%
23%
22%
25
CFO, 11%
Functional heads, 1%
Other, 2%
Key takeaways
Infrastructure and policies are vital components of a top-notch corporate deal process. However, setting transactions
up for success also means paying careful attention to who is involved in the process, when, and why. The trifecta of
strategic clarity, executive access, and deal-making credibility is what translates to merger velocity, says Diane Sinti. This
is the equation for exponential deal value creation, in part because it creates a natural momentum for success in postmerger integration efforts. For corporate development organizations aiming to up their game, its clear that this trifecta is
the place to start.
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Increase, 47%
10%24%, 19%
Decrease, 10%
25%49%, 10%
50%74%, 12%
75% or more, 9%
$50M<$100M, 20%
$100M<$250M, 25%
$250M<$500M, 6%
$500M+, 6%
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30
32%
24%
11%
Key takeaways
Corporate venture funds carry the potential of meaningful
strategic rewards in the form of innovation by creating
strategic options for established companies that manage
a corporate investors exposure to higher risk, early stage
investments. While they are not for every company,
those with the capacity to set aside capital or resources
for investments in early stage companies may be able to
leverage relatively small stakes into major benefits for the
organization as a whole.
16%
3% 5%
Ranked #1
Ranked #2
1
2
31
24%
42%
11%
24%
n $10B+
n $5B<$10B
7%
18%
n $1B<$5B
7%
n <$1B
4%
Figure 32. Industry
10%
28%
11%
8%
19%
1%
19%
n CEO/President
n CFO
31%
14%
16%
8%
n Controller/finance
n Board director
n Other
Contacts
Chris Ruggeri
M&A Services Leader
Principal
Deloitte Financial Advisory Services LLP
+1 212 436 4626
cruggeri@deloitte.com
David Carney
M&A Services Leader
Principal
Deloitte Consulting LLP
+1 917 319 8310
dcarney@deloitte.com
Eva Seijido
M&A Services Leader
Partner
Deloitte Tax LLP
+1 212 436 3322
eseijido@deloitte.com
Charles Alsdorf
Director
Deloitte Financial Advisory Services LLP
+1 212 436 4851
calsdorf@deloitte.com
Hector Calzada
Managing Director
Deloitte Corporate Finance LLC
+1 404 631 3015
hcalzada@deloitte.com
Sara Elinson
Managing Director
Deloitte Corporate Finance LLC
+1 212 436 5665
selinson@deloitte.com
Maureen Errity
Director
Deloitte & Touche LLP
+1 212 492 3997
merrity@deloitte.com
Ken Kirschner
Partner
Deloitte & Touche LLP
+1 212 436 2365
kkirschner@deloitte.com
Kathleen Neiber
Partner
Deloitte & Touche LLP
+1 212 436 3056
kneiber@deloitte.com
Marco Sguazzin
Principal
Deloitte Consulting LLP
+1 415 783 6860
masguazzin@deloitte.com
Diane Sinti
Director
Deloitte Consulting LLP
+1 212 618 4313
dsinti@deloitte.com
Alan Warner
Partner
Deloitte & Touche LLP
+1 415 783 5958
awarner@deloitte.com
Acknowledgment
A special thank you to Jeremy Cranford, Alexandra Dimodica, Igor Heinzer, Geoffrey Helt, Angela Hoidas, Sherry
House, Ajit Kambil, Jarret Meyers, Sateesh Modukuru, Joanna Ostaszewski, JR Reagan, Priyanka Sharma, and
Justin Silber for their contributions and assistance.
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