Amidst rising inflation and interest rates, stock market volatility and geopolitical instability, high-value investment opportunities like mergers and acquisitions may sound out of reach. In fact, the number of deals fell almost 17% year over year in February 2022, while the value of those deals dropped 30%, according to S&P Global Market Intelligence. 

  Stephen Mortimer

Even more sobering news, investments in M&A are on the chopping block, according to 41% of CEOs and CFOs asked in a June 2022 Gartner survey which cuts were likely in the face of continued economic disruption.   

Given the uncertain market landscape, the pressure is on for CFOs to continue to accelerate the successful closing of M&A deals already in progress and to carefully consider any M&A prospects in the pipeline. M&A deals are notoriously complex and protracted, and the longer they take to close, the higher the risks of losing deal value.   

Understanding Common Types

All M&A deal types, especially those involving highly complex carve-outs and integrations or both, offer the potential for substantial value creation. But they equally carry a significant risk of disruption to business performance. And an increasing number of M&A deals are carve-out scenarios — they used to be around 5 to 10% of all deals, but now they are close to 30%, making realizing value even more daunting.

Additional challenges to overcome include technology hurdles, such as integrating enterprise resource planning (ERP) systems and boundary applications, aligning policies, and smoothing cultural differences between organizations. CFOs, finance teams, and legal and compliance experts from multiple corporate entities need to continuously address and navigate these complex challenges from deal start to close. 

Overcome Barriers

With so many variables and potential pitfalls, companies need to make smart decisions. Here are five steps that will help overcome barriers to delivering speed to insight, speed to transform, and speed to execute pre- and post-close.

1. Select M&A deal partners that can execute a complete solution. Too many specialists and extensive handovers can lead to a jigsaw puzzle of PowerPoints and consultant recommendations, leaving the business to pick up the pieces. Look for partners that can help in the short and the long term, who can turn recommendations into outcomes, data into action, and plans into completion. Look for end-to-end partners who will work with the organization to align owners, help with the delivery, build the solutions, and execute them.
2. Use technology solutions that complement rather than replace. For example, data lakes and systems of engagement enable interaction with data outside of core systems, helping to create the ability to drive insight to action and decreasing the impact of underlying complexity and fragmentation. That reduces the need for risky and disruptive full replacements.
3. Adopt business support-as-a-service. Business support-as-a-service allows for faster and greater scale and expansion, eliminating the need to continually recruit in-house team members. It has the advantage of speed and breadth of activity, as well as managing costs and outcomes. This approach will also ensure that design and execution are not worlds apart.
4. Minimize the need for lengthy, inflexible transition service agreements (TSAs). These seller agreements to provide ongoing business activities related to the sold asset for a specific period often cannot be amended to support modifications, such as changing reporting or bringing in a new system. The more quickly an organization can stand alone and get away from TSAs, the more it is in charge of its own destiny.
   
5. Hit value levers early. Planning inertia often creates a period of inactivity before gains are realized. Develop a set of shorter-term return goals and ensure these are delivered, again, using partners that can execute can and help mitigate the constraints on business resources and enable faster overall achievement of objectives. Accessing data, negotiating new contracts, reducing revenue leakage, and improving working capital positions can all help drive immediate benefits and help fund other projects in the business and deliver value in the nearer term. 

Accelerated Carve-Out

Let’s look at an example of how speed to control and transform can work. We recently worked with a global health analytics company to accelerate carve-out and the creation of a standalone operating model to enable a nearly zero TSA. Following its acquisition by private equity, the business required a rapid design and stand-up of its own organization and technology. 

The carve-out was a $1 billion division of a large global information business that didn’t fit the seller's overall model. With accelerated design and the creation of an operating model and systems to enable early standalone, the health analytics company was able to carve out a scalable standalone business four months after the initial engagement. Accelerating the carve-out not only preserved the deal value but also strengthened the market position of the standalone business to scale and grow as an independent entity.

Stephen Mortimer is global M&A practice leader at Genpact.