Creating

value beyond
the deal
What if you took a different perspective
to your M&A?

#BeyondTheDeal
Contents
Foreword: We need to rethink value creation in deals1

Key findings 2

Overview: A fresh approach to value creation planning4

The buyer’s guide to value creation 8

The seller’s guide to value creation 13

Conclusion: Three steps to creating value beyond the deal17

Methodology 18

PwC network contacts 19

About this report:

To help our clients unlock long-term value from the deals they are doing, we surveyed
600 senior corporate executives from a range of industries and geographies and
asked about their experiences with value creation through M&A. All participants in
our survey had made at least one significant acquisition and one significant
divestment in the last 36 months.

In addition, a large-scale global study was conducted on the performance of corporates

following a recent acquisition or divestment.

The survey and research were conducted by Mergermarket and Cass Business School,
respectively, on behalf of PwC.

In this report, we will outline the key findings, discuss their implications and share our
insights on how to further advance and refine the way you approach value creation
within your own organisation.
Foreword

We need to rethink
value creation in deals
Dealmakers are under increasing pressure to deliver more value from each deal
they do. To make the task harder, turbulence in global stock markets is creating
uncertainty around valuations, while companies are wrestling with challenges
such as keeping up with technological change or moving at speed into new and
untested markets.

Amid these macro-shifts in the deals environment, creating lasting value in deals
Malcolm Lloyd
has never been more important. Many executives that we surveyed admitted that
Global Deals Leader, PwC
there is work to be done in overhauling their approach to value creation in both
malcolm.lloyd@pwc.com
acquisitions and divestments.

Our conversations with corporate executives show that companies that genuinely
prioritise value creation early on – rather than assume it will happen as a natural
consequence of the actions they take as the transaction proceeds – have a better
track record of maximising value in a deal.

Our Creating value beyond the deal report has also reinforced my strong belief
that a modern, effective approach to value creation must be built around three
core areas:
One of the findings that
1 Stay true to the strategic intent: The organisation needs to approach deals
as part of a clear strategic vision and align deal activity to the long-term
really stood out for me is
that only 34% of acquirers
objectives for the business. Opportunistic deal-making can create value, surveyed say value creation
but not as often. was a priority on Day One
(deal closing) in their latest
2 Be clear on all the elements of a comprehensive value creation plan – it should
be a blueprint, not a checklist: Ensure a thorough and effective process for deal, though 66% believe it
conducting the deal with the necessary diligence and rigour in the value should have been a priority.
creation planning process across all areas of the business. Consider how each
of these support the business model, synergy delivery, operating model and
technology plans.

3 Put culture at the heart of the deal: Keeping people and cultural aspects
upfront in planning is fundamental. Wide engagement and communication
of the value creation plan will help retain and build buy-in from key
personnel. Failing to plan for cultural change will significantly undermine
the value created.

In the face of disruption across all industries, it is important to ensure these three
core elements are all working in harmony to ensure maximum returns, effective
integration, and long-term value creation.

In this report we will share detailed insights around these areas, along with the
findings of our research. We will also share the first-hand experiences of executives
on both sides of the deal, as we explore how to maximise value.

We would be delighted to discuss the insights of our report with you and how
they may help you to further advance and refine the way you approach value
creation within your own organisation.

1 | Creating value beyond the deal

Key findings
Many acquisitions and divestments don’t maximise value – even when some
dealmakers think they do.

61%
of buyers believe their last acquisition created value, however...

53%
underperformed their industry peers, on average, over the 24 months following completion of their last deal,
based on Total Shareholder Return (TSR).

57%
of divestors underperformed their industry peers, on average, over the 24 months following completion of
their last deal, based on TSR.

Those who prioritise value creation outperform peers by as much as 14%.

14 %
Acquirers that prioritise value
creation outperform their industry
6 %
Divestors that prioritise value
creation outperform industry
benchmark by 14% on average 24 peers by 6% on average
months after completion. 24 months after completion.

A significant number of dealmakers say that value creation should have been
a priority right from the start.

34 %
of acquirers surveyed say value
66 %
of acquirers say value creation
creation was a priority on Day One should have been a priority on
(deal closing) in their latest deal. Day One in their latest deal.

2 | Creating value beyond the deal

Stay true to the strategic intent.

86% 93%
of organisations who reported significant value
of buyers surveyed who say their latest creation invested 6% or more of their total deal
acquisition created significant value also say it value in integration.
was part of a broader portfolio strategy rather
than opportunistic.

Be clear on all the elements of a comprehensive value creation plan – it should be

a blueprint, not a checklist.

83% 89%
79%
63% 70%

of buyers whose deal of buyers whose deal of buyers whose deal of sellers say there is of sellers say there is
lost value didn’t have a lost value didn’t have a lost value didn’t have an room for improvement room for improvement
technology plan in place synergy plan in place at integration plan in place on extracting working on optimising the tax
at signing. signing. at signing. capital. and legal structure.

Put culture at the heart of the deal.

89%
of divestors surveyed believe they could drive
more value from a sale by engaging with the
management team more closely.
82%
of companies who say significant value was
destroyed in their latest acquisition lost more
than 10% of key employees following the
transaction – which is a problem when a growing
number of deals are ‘asset light’ or made up
of predominantly ‘people-centric’ intangibles.

3 | Creating value beyond the deal

Overview

A fresh approach to
value creation planning
Our analysis shows traditional value creation planning is What explains these results? Crucially, only 34% of
no longer enough to guarantee success. While 92% of acquirers in our survey say value creation was a priority
acquirers in our survey say they had a value creation plan on Day One (deal closing) in their latest deal, though 66%
in place for their last deal, only 61% of respondents say believe it should have been a priority (see Exhibit 1). In
their last acquisition created value, including just 21% other words, the most successful acquirers are those with
who say it created significant value. the most extensive and far-reaching pre-deal activity.
Indeed, more than two-thirds of companies whose deals
Furthermore, research shows that 53% of acquirers subsequently created significant value relative to the
underperformed their industry peers, on average, over purchase price, say they had an integration strategy in
the 24 months following the completion of their last deal, place at signing.
based on Total Shareholder Return (TSR).
This tells us that genuinely accretive deals lock in a value
The story is similar for disposals: 42% of sellers say their creation approach much earlier than is currently the case
last deal created value relative to what the business would for most. The same applies to sellers: companies that
have been worth had it not been sold. But research shows enter into a possible transaction that have already applied
that 57% of divestors underperformed their industry a strategic lens to divestment planning and portfolio
benchmark in terms of TSR over the 24 months following review – as opposed to engaging opportunistically – are
their most recent deal. more likely to create value.

EXHIBIT 1
What were your priorities on Day One and what should they have been?

66%
Value creation
34%

48%
Operational stability
53%

Client/customer 44%
retention 35%

Human capital 19%

optimisation 14%

11%
Talent retention
8%

Changing operating 10%

model 26%

2%
Rebranding
30%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Should have been prioritised Actual priorities

Source: Creating value beyond the deal report, Mergermarket

Base: 2018 survey of 600 corporate senior executives

4 | Creating value beyond the deal

Malcolm Lloyd, Global Deals Leader, PwC, says: The buyer’s perspective
“More companies are getting better at creating value
through mergers and acquisitions, but there is still more The need for a clear M&A strategy
that needs to be achieved and the key is to think about
this in greater depth much earlier on in the deal.” In light of these results, it is perhaps unsurprising that 83%
of respondents say they need to improve their value creation
The most successful dealmakers ensure their M&A plans. Doing so should begin with a robust strategy,
strategy sits at the heart of their business strategy. thorough assessment of whether the deal is the right
This creates clarity around the strategic hallmarks of one to pursue, and a clear methodology.
any potential deal they consider. • 98% of companies that say their last acquisition
created significant value also say they have a formal
Increasingly, companies are needing to challenge the
value creation methodology.
relevance of both its business model as well as its
operating model to ensure these are futureproofed, • 86% of companies who say their last acquisition created
given the pace of disruption. Our findings highlight the significant value also say it was part of a broader
significant need for improvement in due diligence across portfolio strategy rather than opportunistic.
many areas which underpin the operating model. For
• 68% believe they can improve their target selection
example the technology and IP plan, tax operating model,
to better meet strategic needs.
and core operations of the target.

Another area ripe for improvement is around prioritisation.

Investing in integration
Our survey reveals that 30% of organisations say they
prioritised rebranding on Day One – something that all but Our research also highlights a clear correlation between
2% later admit should not have been a priority. the investment that organisations make in integration and
their ability to create value:
Of course, branding is important, but it is more important
that the business behind the brand is built on a sound, • 93% of organisations who report significant value
strategic plan. creation in their last deal say they invested 6% or more
of their total deal value in integration (see Exhibit 2).
Organisations that prioritised factors such as value
creation early on, over factors such as branding, fared far
better. Among those that prioritised rebranding, almost
half turned out to be value-destructive deals.

EXHIBIT 2

As a percentage of the total deal value, how much did you spend on integration?

Spend as percentage
of total deal value
1%
Less than 1%
7% 6% 6% 2-5%
6-10%
11-20%
25% 21-30%
44%

49%
62%

Acquisitions with significant value Acquisitions with significant value

lost relative to purchase price created relative to purchase price

Source: Creating value beyond the deal report, Mergermarket

Base: 2018 survey of 600 corporate senior executives

5 | Creating value beyond the deal

Putting people at the heart of the deal EXHIBIT 3

Did cultural issues hamper the realisation

Respondents recognise that they should have prioritised
of value in this deal?
people and culture during their last deal. A significant
percentage also say that value creation was adversely
affected by cultural issues (see Exhibit 3). 100%
No
• 92% believe they could have handled communication
and culture management more effectively during their
80% Ye
last deal.

• 82% who say significant value was destroyed lost more 62%
than 10% of key employees post-deal (see Exhibit 4). 60%
• 65% of acquirers say cultural issues hampered the 100%
creation of value.
40%
Tellingly, for acquisitions with significant value lost relative
to purchase price, all respondents say that cultural issues
hampered the realisation of value. 20%
38%

The seller’s perspective 0%

Acquisitions with Acquisitions with
Our survey and research also look at deals from the significant value significant value
perspective of sellers and identifies similar issues on that lost relative to created relative to
side of the transaction, from the need for a robust strategy, purchase price. purchase price.
to ensuring the smooth running of the deal mechanics and
a culture primed for value creation. Yes No

Source: Creating value beyond the deal report, Mergermarket

While 42% of divestors say their last sale generated value, Base: 2018 survey of 600 corporate senior executives
relative to the value that business would have created
had it not been sold, just 13% say their last divestment EXHIBIT 4
generated significant value, and 35% say their last deal What percentage of target employees left that
actually lost value. Furthermore, research shows that you had hoped to retain?
57% of divestors underperformed their industry peers,
on average, over the 24 months following the completion 60%
of their last deal, based on TSR (see Exhibit 5). Acqui
create
50% 50%
However, these results should not discourage sellers, Acqui
but they should certainly focus their minds on getting 42%
the deal right. 40% 40%

31%
30%

An assessment of the people running 20% 19%

16%
the organisation was important as
we wouldn’t want to consider a deal 10%

whose management was unsupportive 2%

0%
0%
of the deal. The integration strategy 0-5% 6-10% 11-20% 21-30%
was the second most important as we Employees that left that were hoped to be retained
wanted to create a bridge that would
bring both the organisations in line Acquisitions with significant value lost relative
to purchase price
and for production and supply to flow Acquisitions with significant value created relative
through easily. to purchase price
Senior Director of Corporate Development in a retail, Source: Creating value beyond the deal report, Mergermarket
consumer and leisure company based in the US Base: 2018 survey of 600 corporate senior executives

6 | Creating value beyond the deal

EXHIBIT 5

Performance of divestors relative to industry benchmark 24 months after completion

43% 40%
Global EMEA
60%
57%

37%
49% Americas APAC

51% 63%
Underperform
Outperform

Source: Creating value beyond the deal report, Cass Business School
Base: Company performance is measured using TSR on divestments (fully divests a division or subsidiary)
between 1 January 2008 and 31 December 2016. The latest date TSR measured was 30 June 2018.

Preparing the asset for sale Culture is not just a buyer’s concern
Our survey reveals that divestors recognise there is As with acquisitions, respondents also recognise the
more they can do to prepare assets for sale and make critical role that culture and their people play in ensuring
them more attractive to buyers. the divestment creates as much value as possible. While
colleagues in the business being sold may be unsettled
• 84% believe there is room for improvement when
or concerned, keeping value-creating talent informed
presenting upside opportunities to buyers.
and engaged in the business is critical.
• 89% believe they could do more to optimise the
• 93% of divestors surveyed believe there is room
asset from a tax and legal structure perspective.
for improvement in the way they engaged with and
• 39% agree there is also significant room for incentivised the management team of the asset
improvement in optimising the asset’s financials. being sold.

The value of sell-side due diligence

There is also a clearer focus on planning, due diligence
and adherence to methodology among those businesses
reporting divestments that created value. Conducting
We were keen on incentivising the
sell-side due diligence provides the opportunity to management during the deal process
present the full potential of the business and a vision so that they maintained their level
for the future. It also allows the seller to anticipate any
buyer concerns and mitigate these in a timely manner
of quality and didn’t get distracted
to avoid surprises, and ensure no loss of momentum by the deal-making procedure. The
or competitive tension during the sale process. management team functioned well
• 92% of those who say their last divestment created and followed our instructions to allow
significant value also carried out sell-side due diligence.
the business to continue as usual.
• 99% of those whose last divestment created significant Head of Treasury and M&A, retail, consumer and leisure
value have a formal value creation methodology. business in the Nordics

7 | Creating value beyond the deal

 Acquisitions allow companies to expand and diversify but
our research confirms something buyers won’t want to
hear: many deals don’t create value.

TSR of just over half of the acquirers examined

underperformed their industry benchmark in the two years
following completion of their last deal.

To win deals and extract maximum value, companies

need to consider all aspects of their value creation plan
and embed this in a long-term strategy, underpinned by
experience in the art of deal-making and careful cultural
considerations.

1. Start with a clear M&A strategy

Bringing a more strategic lens to M&A planning and execution
means understanding where the business needs to strengthen
or expand in order to deliver on its ambitions. It also means
regularly reviewing the market for relevant opportunities.

The buyer’s Over three-quarters of respondents say their latest deal was
driven by a strategic portfolio review. Just under a quarter

guide to value were considered opportunistic. Significantly, the former were

far more likely to result in value being created.

creation Of those corporates where acquisitions went on to create

significant value, 86% say their deal was part of a strategic
portfolio review, while only 14% describe it as opportunistic.

2. Focus on value creation from the start

In deals that respondents say subsequently created
significant value, over half of acquirers prioritised value
creation from Day One. But only a third say value creation
Deals that deliver value was a priority from Day One of their latest deal. Most
don’t happen by accident. acknowledge this was a mistake and, given the chance
to do the deal over again, two-thirds of respondents
Transactions should be an admit that, more than anything else, value creation would
extension of your corporate be a priority right from the start.
strategy instead of a sudden At the same time, prioritising the wrong things can damage
opportunity. Companies that value. For example, while 30% of respondents say
invest time in strategy, follow rebranding was a priority in their last deal, only 2% say this
was the right approach, with the benefit of hindsight.
that course, and avoid chasing
a shiny object just because
it’s available will have a much
better path to success.
Bob Saada, Deals Leader, PwC US All companies have different
cultures and it’s just not possible
for every company to fit perfectly
in a puzzle. Finding a target that
can be easily integrated is the most
challenging element in the early
stages of every transaction.
Group Director of Finance at a financial services
firm in the UK

8 | Creating value beyond the deal

3. Do comprehensive due diligence 4. Be a ready buyer

The majority (80%) of respondents say their last Our survey and market research show buyers need to
transaction taught them they need to do a better job of work harder than ever in the lead up to a transaction.
due diligence to validate their pre-deal hypothesis (see
Hein Marais, EMEA Value Creation in Deals Leader, PwC UK
Exhibit 6) and assess whether a potential acquisition will
says: “Traditional 100-day planning is no longer enough.
help them pursue strategic priorities.
Acquirers need to be ready with a comprehensive value
creation plan 30 days before deal signing so that key
Marissa Thomas, Deals Leader, PwC UK, says: “Smart
assumptions can be tested and validated through diligence,
buyers are doing more sophisticated diligence and
and so the plan can be implemented straight away.”
examining value creation opportunities more deeply than
those simply conducting financial and tax due diligence.”

Technology due diligence has become a central focus

given the significant pace of change across all industries.
New technology-led commercial opportunities, such as
We decided last year that we needed
monetising data, the creation of new services and driving to be a more dynamic organisation
cost efficiencies, will only continue to increase in with more advanced technology. The
importance.
business we bought not only provided
us an immediate technology upgrade,
but also a pipeline of advances for
the next five years at the least.
Director of M&A at a Canadian energy business

EXHIBIT 6
How would you rate your focus on each of the following areas of the acquisition process?

Ranked in order of percentage of respondents stating there was “Significant room for improvement”

Due diligence on technology and IP 29% 44% 27%

Due diligence on tax issues 26% 49% 25%

Due diligence on operations 37% 40% 23%

Validating pre-deal hypothesis 20% 57% 23%

Commercial due diligence 31% 46% 23%

Due diligence on legal issues 28% 49% 23%

Negotiating other terms of sale and

purchase agreement (TSAs, warranties 27% 52% 21%
and indemnities etc)
Negotiating a valuation with the seller 28% 53% 19%

Due diligence on financials 26% 59% 15%

0% 20% 40% 60% 80% 100%

Little room for improvement (high performance) Significant room for improvement (low performance)
Some room for improvement (average performance)

Source: Creating value beyond the deal report, Mergermarket

Base: 2018 survey of 600 corporate senior executives

9 | Creating value beyond the deal

5. Devote more resource to integration Many companies build large teams focused on
transactions, but these people often also have day-to-day
Businesses that commit resource to ensuring the
responsibilities and work on a deal on the side, making
successful integration of a deal are more likely to create
it difficult to give it the focus it needs. Businesses must
significant value. This may sound obvious, but the survey
invest time and resource in the process to succeed. For
findings suggest many organisations are not adopting
example, over two-thirds of companies who say their
such an approach.
latest deal subsequently created significant value relative
to the purchase price also had an integration strategy in
For example, almost three-quarters of respondents say
place at signing (see Exhibit 7).
they spent 10% or less of the total value of the deal on
integration. Almost half of those organisations spent 5%
6. Focus on people
or less. Almost all organisations who say they spent 5%
or less on integration also say their deals lost value. By The ability to bring cultures together should be a key
contrast, over two-thirds of organisations who say they factor in deciding whether or not you do the deal.
spent between 11% and 30% of the total deal value on
integration say the deal subsequently created value. Savvy dealmakers identify crucial employees before an
acquisition and ensure they are incentivised to remain.
Marissa Thomas, Deals Leader, PwC UK, says: However, nearly half of respondents say they lost more
“One of the misconceptions in the market is that deal than 10% of the staff they hoped to retain following their
fundamentals such as integration are post-deal issues – most recent acquisition. Tellingly, among acquirers who
they absolutely are not. Successful acquirers and investors say their latest deal lost significant value, this figure rises
work on integration and other core value creation levers to 82%.
at the same time as they conduct their diligence.”

EXHIBIT 7
Which elements did you have in place at signing (split by percentage of deals that
lost/gained significant value)?

100% 98% 98%

80% 79% 77%

76% 75%
72%
69% 69% 68%
63% 65%
60% 60%
56%

40% 37%
33%
30%
21%
20%

0%
Integration Regulatory Synergy Technology Target Communications Personnel Value Competitive
strategy assessment plan plan operating strategy assessment creation assessment
model plan

Delta1 48% 46% 39% 31% 13% 10% 4% 0% (5%)

Note 1: Delta = % deals with significant value gained minus % deals with significant value lost

Acquisitions with significant value lost relative to purchase price

Acquisitions with significant value created relative to purchase price
Source: Creating value beyond the deal report, Mergermarket
Base: 2018 survey of 600 corporate senior executives

10 | Creating value beyond the deal

Talent is increasingly at the forefront of deals, often tied to
intellectual property and specific skills, as the technology
sector has already discovered. It’s important to understand
these ‘softer’ elements in the diligence phase and develop
a plan to address them once the deal is done.

Maarten van de Pol, Deals Leader, PwC Europe, says:

“Culture takes a long time to develop, a great deal of
effort to maintain, but relatively little time to undermine.
As such, communication is critical.”

Even before a transaction completes, smart organisations

know their public statements will be scrutinised. Messages
that reassure the target’s talent, during those early stages,
offer a head-start on dealing with cultural issues. And
once the deal is signed, direct communication with
employees should be a top priority. Understanding their
motivations and giving them an incentive to stay is vital.

Our survey underlines this point with 92% of respondents

saying they should have communicated more effectively
during the deal and 78% after the deal.

7. Keep tax and legal engaged in planning

Managing the financial implications of a deal remain
critical to success, but issues such as tax and legal are
just as important. Buyers need the right tax strategy and
doing a deal is a one-off opportunity to revisit tax
structures completely. The buyer can re-examine the way
it operates and create new platforms and policies.
However, the deal process tends to be commercially
driven, and not tax driven. Organisations can miss out
on this opportunity – and the value that can be created –
if they are too busy doing the deal.

Similarly, not properly addressing legal issues can hinder

value creation. For example, buying a business from its
long-term owner involves buying its corporate structure. It’s challenging to acquire a
There may be a chain of holding companies or operations
split across different jurisdictions. Once you’ve bought the technology company that has a
business, you may want to transfer operations in or out of sophisticated technical work culture
those subsidiaries and shut some down. There may be and merge it into a group that
dividend blocks within the structure that prevent capital
from being extracted or moved around the group. is building its technology from
scratch. This was the issue in our
All of these may require significant and careful last acquisition, but we are working
consideration to realise whatever gains a buyer
hopes to make. closely with both sets of employees
and they have taken a professional
approach to the situation.
Director of Strategy at a Russian technology, media
and telecommunications business

11 | Creating value beyond the deal

A global view on value creation: APAC powers ahead while Europe lags
Our research shows that value creation in M&A reflects quickly while the Americas and Europe struggled for
recent regional economics. For example, the average longer. Between 2008 and 2011, the TSR of APAC-based
acquirer in Asia-Pacific (APAC) outperformed those in the acquirers underperformed by an average of 2% in the
Americas significantly in terms of average TSR in the 24 24 months after completing a deal, while those in the
months following their last acquisition. Americas outperformed by 6%. But deals done between
2012 and 2016 show the tables turned: in APAC, they
Wai Kay Eik, Deals Leader, PwC Mainland China and outperformed industry benchmarks by an average of 50%,
Hong Kong, says: “GDP growth in Asia has been around while this stood at just 2% in the Americas.
two to three times that of Europe and the US, and that’s
a big factor. The value creation lever in much of Asia is to “Much of this comes down to sophistication. More
buy a company and let it get on with things because the sophisticated buyers in the region know exactly what they
markets are growing underneath it.” want to buy, strategically, and ensure it fits into their larger
plans. However, most businesses in Asia do not pursue
Trends over time also vary greatly. Less TSR value was acquisitions often – they may be involved in one or two
created by deals in APAC in the immediate aftermath in their lifetimes,” says Wai Kay Eik, Deals Leader, PwC
of the 2008 financial crisis, but the region rebounded Mainland China and Hong Kong.

12 | Creating value beyond the deal

 The centre of gravity in divestments
has shifted earlier in the deal process.
Sellers need to prepare a simple
and compelling value story that
buyers can grasp quickly. Outline
the basic story, show them where
The seller’s value has been built and how they
can continue to create value in the
guide to value business in future.

creation Hein Marais, EMEA Value Creation in Deals Leader,

PwC UK

Any portfolio reorganisation or rationalisation should add

value. Yet, fewer than half the executives in our survey
say their last divestment generated value relative to the
value the business would have created had it not been sold. We use a formal method to complete
In fact, almost a quarter admit little or no value was
our divestments. This involves formal
created and more than a third report their divestment considerations with specifics that
destroyed value, leaving many to reflect on a range of change according to the nature of the
areas within their planning and preparation that could
have been significantly improved (see Exhibit 8).
negotiations.
Director of M&A at a retail, consumer and leisure
While it is true divestments may occur more often in company in the UK
businesses already operating in challenging conditions,
these results are nonetheless concerning. Whether it is
releasing an underperforming business unit or shedding
Some companies may not believe they pursue enough
a non-core unit, divestments, like acquisitions, still have
divestments to justify the work involved, but the value
the potential to create value, with the right strategy,
on offer should be a compelling incentive. Almost every
planning and investment.
respondent who says their most recent disposal created
value also confirms they had a formal divestment
1. Develop a ‘divestment playbook’
methodology in place (see Exhibit 9).
Sellers need to develop consistent value focused
messages based on thorough preparation and portfolio Does this mean businesses should take a one-size-fits-all
review with potential buyers in mind. This demands approach to divestments? Absolutely not.
a solid methodology and a divestment playbook that
includes a plan for addressing the most awkward However, while no two divestments will ever be the same,
questions a potential buyer could ask. many companies believe it is possible to put in place a
methodology for managing the deal that enshrines key
The importance of developing a divestment playbook principles and practices, while still providing agility to
to cope with the unexpected, even for one-off adjust to different circumstances.
transactions, is underlined by the significant correlation
between businesses that do have one and those that are
successfully driving value.

13 | Creating value beyond the deal

EXHIBIT 8
How would you rate your approach to your last divestment in the following areas?

Ranked in order of percentage of respondents stating that there was “Significant room for improvement”

Optimising financials 23% 38% 39%

Optimising IT infrastructure 38%

16% 46%
for separation

Optimising operating model 17% 46% 37%

Separating employees and pensions 16% 49% 35%

Extracting working capital 17% 51% 32%

Mitigating stranded costs 19% 50% 31%

Mitigating residual risks 18% 53% 29%

Aligning incentives of senior managers 11% 61% 28%

Optimising tax and legal structure

11% 63% 26%
to enhance value

0% 20% 40% 60% 80% 100%

Little room for improvement (high performance)

Some room for improvement (average performance) Source: Creating value beyond the deal report, Mergermarket
Significant room for improvement (low performance) Base: 2018 survey of 600 corporate senior executives

2. Don’t leave due diligence to the buyers

Despite its potential to create value, almost half of
We found it difficult to find the right divestors we surveyed say they carry out no sell-side due
diligence at all. Almost all of those who say their last
set of buyers for the assets despite divestment created value conducted sell-side due diligence;
the company’s efforts. We were by contrast, less than a tenth of those who say they lost
struggling to project the upside of the value had done so.

deal to businesses in Europe. It was Successful divestors are heading off difficulties at an early
imperative to have the right advisers stage, with their sell-side due diligence efforts reflecting
to help us find the right buyer. a more disciplined approach overall to divestments.

Director of Strategy at a Japanese natural 3. Explore the art of the possible

resources business
Divestment plans should involve more than just the
allocation of existing capital. They should consider and
map out the art of the possible. What could the asset
being sold achieve with unconstrained capital, bringing
in much-needed new skills and bolt-on acquisitions?

This kind of approach will not only attract a wider pool

of potential buyers, but it will also hold on to value
through the deal.

14 | Creating value beyond the deal

Helen Mallovy Hicks, Global Valuations Leader, PwC “People who haven’t seen a divestment in action don’t
Canada, says: “People can often overlook the impact that appreciate the stresses involved,” says Bob Saada, Deals
value creation can have on a divestment. For example, Leader, PwC US. “The best sellers have done it many times
a founder may run a very tight ship with controls over and they are more practised.”
expenditure, and may therefore be highly reluctant to spend
something that is not part of the normal course of business. Divestors – especially those with minimal experience in
But any uptick in earnings – even just a small percentage this area – should take advantage of an array of third-
– can represent many multiples of value in a sale.” party advisers. The goal should be to use these advisers
as early as possible in the process, to help investors
4. There is no substitute for experience understand the opportunity, in a measured way, and to
build their confidence over time.
Almost half of respondents may not make any divestments
in a typical year. Only a small percentage say they typically
make three or more divestments annually (see Exhibit 10).
And this lack of experience can affect value even when
the team involved thinks everything is running well.

EXHIBIT 9
Do you have a formalised methodology and/or blueprint for creating value through divestments?

100% Yes
7%
No

80%

60%
99%
93%
40%

20%

1%
0%
Divestments with significant value Divestments with significant value
lost relative to if the business had created relative to if the business had
been retained been retained

Source: Creating value beyond the deal report, Mergermarket

Base: 2018 survey of 600 corporate senior executives

We do possess a formalised exit plan

that has been developed internally.
With negotiations being of higher
importance we prefer using the plan
in every exit to gain solidarity and
comfort in exiting from a company.
Director of M&A at a financial services company
in Germany

15 | Creating value beyond the deal

5. Make the most of your people any potential liabilities and to define who will be
responsible for any issues that may arise due to those
Focusing your best people on maximising the
liabilities after the deal is done.
value of a unit you are planning to sell may seem
counterintuitive, but it will ensure value is not lost
This can often fall to the buyer, but a competitive sale may
and prevent buyers from dropping out. Furthermore,
complicate things, requiring a legal buffer between buyer
your ability to motivate those people who are in
and seller to deal with any potential post-close liabilities.
the business being sold and transitioning them
A seller may have to put money into escrow in anticipation
successfully to the buyer has a crucial role to play.
of these liabilities, which cuts into the value of the sale.
Addressing any potential legacy issues before a business
Sarah Moore, People in Deals Lead, PwC UK,
is put up for sale can mitigate value loss.
says: “The challenge is getting your best people to
focus on the divestment – those who understand
its key stakeholders as well as all aspects of the EXHIBIT 10
unit’s operations. Make sure they’re fully incentivised How many divestments do you typically
and those incentives will produce the highest make per year?
possible returns.”

While managers in the business being sold may be

uncomfortable with the process, their experience will 15%
likely be coveted by potential purchasers, while their
departure could jeopardise deal valuations. Engaging
them in the process will be important.
20%
“When buying a business, one of the first things
65%
an investor is going to consider is the quality of
the management and who is delivering value,”
says Malcolm Lloyd, Global Deals Leader, PwC.
“Management must be incentivised. Bring people
with experience into the room to discuss options. Divestments with significant
Learn from what has worked and what has not to value lost relative to if the business
achieve the right balance of ensuring the value had been retained
creation plan is challenging, yet credible.”

6. Address legal complexity

On the divestment side, much of the legal complexity
23%
stems from separating out the entity being sold and
33%
making sure it is done early enough so it’s ready to
go when it comes to market.

There are a few key legal issues in divestments that

can influence value creation. First, define what you’re
selling and examine the legal structure holding that
business within the group. For example, in a carve-out, 44%
you need to determine what assets are being sold,
who owns them within the group, and how to get Divestments with significant value
them to a position where a buyer can pick them up created relative to if the business
as a standalone from the core business. had been retained

0 1 or 2 3 or 4
If the business being sold is part of a wider group,
most buyers will question what specific value it
Source: Creating value beyond the deal report, Mergermarket
creates. Sellers need their legal team to ring-fence
Base: 2018 survey of 600 corporate senior executives
those assets as a standalone entity.

The legal team also needs to assess the legacy of

prior ownership and operations of the business, from
its real estate to its workforce or even its potential
environmental legacy. Buyers will want coverage for

16 | Creating value beyond the deal

Conclusion

Three steps to creating

value beyond the deal

1. Stay true to the strategic intent

As our research and survey reveal, many companies have been disappointed
by the results of their latest transactions and, in the worst cases, their deals
have destroyed shareholder value. Thank you for reading through
our report, we hope it has
But it is also evident that organisations who properly commit to success, provided you with useful
put in place a clear strategy, and back themselves to succeed can create
insights. We would be
significant value.
delighted to discuss its
It is crucial to develop a strategy that prioritises value at every stage of the content with you and how
deal: from identifying the right target, to planning rigorous due diligence, it may help you to further
ensuring key talent remain engaged and investing appropriately in value advance and refine the way
creation planning and integration. you approach value creation
within your own organisation.
2. Be clear on all the elements of a comprehensive value
creation plan – it should be a blueprint, not
Whether you are considering
a checklist
Ensure a thorough and effective process for conducting the deal with the acquiring or divesting, we can
necessary diligence and rigour in the value creation planning process across help you create exceptional
all areas of the business. Consider how each of these support the business shareholder returns through a
model, synergy delivery, operating model and technology plans. relentless focus on value
creation across your M&A
Whether buying or selling, have a comprehensive value creation plan.
lifecycle.
Start early, be thorough and take every opportunity to validate the key
assumptions in the plan through advanced analytics and diligence. Value
Malcolm Lloyd,
creation plans should cover all aspects, including strategic repositioning,
Global Deals Leader, PwC
improving business performance, optimising operating model, the balance malcolm.lloyd@pwc.com
sheet and considering the right tax structure.

3. Put culture at the heart

Many organisations now rank their people as their most important asset.
Whether buying or selling, recognising key skills, clear communication and
incentivising core talent to stay engaged throughout the value creation
process, is essential. Buying a brand but losing the people who made it so
desirable, or preparing an asset for sale, but losing the vital people within,
can both destroy the value of a deal.

Our analysis confirms the importance of seasoned, experienced people

to generating maximum value from a deal. Where organisations lack that
experience in-house they should seek it out.

17 | Creating value beyond the deal

Methodology
This report presents analysis from a large-scale global The analysis includes only companies with a minimum
study on the performance of companies following market value of €100m as of the month prior to deal
acquisitions and divestments, conducted by Cass announcement. In addition, transactions valued at less
Business School on behalf of PwC. Company performance than €50 million or less than 10% of the buyer’s or
is measured using Total Shareholder Return (TSR). The seller’s market capitalisation have been excluded.
percentage change in TSR has been calculated over a The final sample also excludes companies that operate
window starting one month prior to announcement of the in the Real Estate sector.
deal and ending 12 and 24 months after deal completion
(that is, two different time windows for each transaction). Survey research
To understand the factors influencing performance
Performance is measured against industry level
we surveyed 600 corporate senior-level executives
benchmarks. The TSR is defined as the growth in value
from a range of industries and geographies about their
of a shareholding over the specified period, assuming
experiences creating value through M&A. All participants
dividends are re-invested to purchase additional shares.
in the survey had made at least one significant acquisition
and one significant divestment in the past 36 months.
The report includes transactions announced between
The survey included a combination of qualitative and
1 January 2008 and 31 December 2016. The latest date
quantitative questions and all interviews were conducted
TSR measured was 30 June 2018. Acquisitions are defined
by telephone. All responses are anonymised and
as a change-of-control transaction where the company
presented in aggregate.
buys control of another company. Divestments are defined
as a change-of-control transaction where the company
fully divests a division or subsidiary.

Who we spoke to as part of our survey

Americas EMEA APAC Total

Energy, Utilities, Mining and Infrastructure 40 40 20 100

Financial Services 40 40 20 100

Healthcare (including Pharmaceuticals) 40 40 20 100

Industrial Products and Business Services 40 40 20 100

Retail, Consumer and Leisure 40 40 20 100

Technology, Media and Telecommunications 40 40 20 100

Total 240 240 120 600

18 | Creating value beyond the deal

PwC network contacts
Malcolm Lloyd Maarten van de Pol
Global, EMEA and Spain Deals Leader, PwC Deals Leader, PwC Europe
malcolm.lloyd@pwc.com maarten.van.de.pol@pwc.com

Bob Saada Marissa Thomas

Deals Leader, PwC US Deals Leader, PwC UK
bob.d.saada@pwc.com marissa.c.thomas@pwc.com

Hein Marais Sarah Moore

EMEA Value Creation in Deals Leader, PwC UK People in Deals Lead, PwC UK
hein.marais@pwc.com sarah.moore@pwc.com

Helen Mallovy Hicks Wai Kay Eik

Global Valuations Leader, PwC Canada Deals Leader, PwC Mainland China and Hong Kong
helen.m.mallovy.hicks@pwc.com waikay.eik@hk.pwc.com

19 | Creating value beyond the deal

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