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Toward transaction excellence

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Corporate development involvement in the capital agenda


Corporate development involvement in the capital agenda

CDO reporting structure


CDO reporting structure

Overall satisfaction of transaction workstream


Overall satisfaction of transaction workstream


Today, 42% of CDOs report directly to the CEO, up from 38% in the 2004 study.

Summary: To deliver value in today’s tough market, corporate development teams must focus on aligning deal strategy with corporate strategy, follow formalized processes and forge strong relationships throughout the company. Effective corporate development leaders excel in these areas.

What makes the difference between leaders and laggards in corporate development?

A new EY study shows that success depends on the level of attention paid to three areas:

  1. Strategic alignment
  2. Formalized deal processes
  3. Strong internal relationships

Leaders exhibit a heavy focus on — and excellence in — all three areas, enhancing performance across the entire transactions lifecycle.

Our ongoing research on corporate development explores such issues as the role, effectiveness and structure of the corporate development function (CDF). In 2011, we embarked on a global study of current practices, an update of similar studies conducted in 2004 and 2007.

For this latest study, we surveyed more than 200 executives from major global companies. Our respondents were the most senior individuals in terms of responsibility for transactions, usually corporate development officers (CDOs).

Certainly, businesses are introducing greater rigor into the evaluation and continuous improvement of their corporate development activities. But leaders do more than merely pursue the above objectives.

Those companies expressing the highest degrees of satisfaction with their transaction results also report higher than average success delivering on the three conditions.

Driven by capital

The CDF is expanding, participating more broadly across the whole of the transaction lifecycle as opposed to focusing on one-off transactions. Accordingly, the CDO is gaining greater responsibility.

This means that the CDO and the CDF play key roles in their organization’s deployment and utilization of capital. The most successful businesses take steps to actively evaluate and manage their capital bases.

As our capital agenda framework illustrates, this requires devoting appropriate resources and focus to raising, investing, optimizing and preserving capital.

Corporate development involvement
in the capital agenda

Corporate development involvement in the capital agenda

The CDO is particularly active in both investing and optimizing capital. Acquisitions, mergers, joint ventures (JVs) and partnerships are just a few of the areas where the CDO plays a leading role in decisions and actions that commit enterprise capital.

In these instances, the CDF’s investment focus includes everything from identifying targets and executing transactions to asset valuation, synergy identification and tax planning.

Our study results show that a majority (87%) of CDOs either lead and perform (52%), lead only (23%) or perform only (12%) investing activities (see Table 1).

Alternatively, 13% of the respondents show as not involved because CDOs often do not get involved in investor relations (59%), tax planning (26%) and transaction measurement (19%).

Similarly, the CDF plays a vital role in optimizing corporate capital deployment. A full 69% of respondents say they lead and perform (34%), lead only (19%) or perform only (16%) these activities. The leading practice is to view corporate holdings in portfolio terms.

A strong CDO will continually evaluate asset values in an effort to identify opportunities to enhance return on invested capital (ROIC). This is a decidedly strategic activity, requiring the executive to evaluate how any given asset will perform in current hands versus by a change in ownership.

Such analysis can drive all manner of transactions. For example, a CDO might recommend that the company divest, spin off or otherwise restructure an underperforming or undervalued business unit or subsidiary — all highly strategic moves and a testament to the increasing visibility of the CDO. Today, 42% of CDOs report directly to the CEO, up from 38% in the 2004 study.

CDO reporting structure

CDO reporting structure

Gaps in deal satisfaction

At first glance, it might appear that most companies believe they are doing an adequate job of closing deals. For example, 78% of respondents say they are either very satisfied (26%) or satisfied (52%) with valuation. In terms of the quality of deals considered, 71% say they are either very satisfied (20%) or satisfied (51%).

The majority of companies are also reasonably satisfied with the efficiency of their deal-related due diligence processes (see Table 3).

However, only 14% are very satisfied and only 32% satisfied with the percentage of deals that reach a successful close. Perhaps even more distressing, only 41% of companies are either very satisfied (4%) or satisfied (37%) with their workstream results in transaction integration.

Overall satisfaction of transaction
workstream

Overall satisfaction of transaction workstream

And yet the median response is neutral — neither satisfied nor dissatisfied with integration — a view held by 40% of respondents. Such a lukewarm response is particularly worrisome given the critical role played by integration in the realization of transaction value.

A deal can have all of the elements necessary for success, but if the company aspires to a merely acceptable standard of integration, it heightens the risk of significant value erosion.

Those respondents who express greater satisfaction with the quality of their deals exhibit significantly greater focus on three vital areas: strategic alignment, formalized deal processes and strong internal relationships throughout the enterprise.

We explore the results of the study across the following topics:

  1. Strategic alignment
  2. Formalized deal processes
  3. Strong internal relationships
  4. The top 10 traits of successful CDOs
  5. The DNA of the corporate development function


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