US dealmakers cite increasing pressure to realize post-merger synergies faster in EY survey
New York, 23 January 2018
As dealmakers grapple with elevated valuations, the continuing rise of shareholder activists and rapidly evolving technological change, an overwhelming 82% of the M&A community said they have felt greater pressure to achieve synergies more quickly over the last two years, according to a survey conducted by Ernst & Young LLP’s (EY) Transaction Advisory Services.
The December 2017 survey of 91 dealmakers at the 15th annual Deal Economy Conference in New York City, found that most dealmakers (84%) cited shareholder activists and boards as the biggest source of pressure in expediting synergy capture.
“Business decisions and processes have accelerated, and the deal process is no exception,” said Bill Casey, EY Americas Vice Chair, Transactions Advisory Services. “The need to innovate quickly is forcing companies to compress the time between identifying acquisition targets and post-close integration. After a boom of dealmaking over the last couple of years, activists, boards and C-suites are laser-focused on quickly bringing the transformative potential of these transactions to fruition.”
Two-thirds of executives (66%) said that strong internal communications helped accelerate synergy capture, and more than half (51%) said that clear communication of a company’s vision to employees is the most important element of combining two cultures.
The latest EY Capital Confidence Barometer also found that a clear deal rationale was a high priority, 41% of US executives surveyed said that ensuring they have a strong narrative to engage all stakeholders is a key consideration when structuring a deal.
Frequent portfolio reviews and the use of analytics are contributing to the velocity of the deal process. While used throughout the M&A lifecycle, 32% of executives said that data analytics are valuable during the due diligence process, 29% cited determining valuations.
Without internal alignment on narrative and mission, deal value can be at risk. One-third (34%) of respondents said that a communication breakdown is most likely to decrease deal value, followed by a lack of employee morale (30%).
“For the newly formed company to achieve its goals, the combined workforce must understand and buy into the go-forward strategy of the new entity, starting with a compelling and pragmatic story around what the transaction is meant to achieve,” said Mitch Berlin, Partner, Ernst & Young LLP and US Operational Transaction Services Leader in the EY Transaction Advisory Services practice. “Companies cannot underestimate the power of a clear narrative because if conveyed successfully, it will translate to support from the board, shareholders and realized synergies in the portfolio.”
The survey was conducted at The Deal Economy conference in New York on November 30, 2017 and polled 91 influential members of the dealmaking community, including corporate executives, investment banking professionals, corporate lawyers, hedge fund managers, private equity investors, consultants and other advisors to private and publicly listed companies.
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