3 minute read 26 Jul 2021
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Imagine the business and financial impact if deal value realization could be improved by 10%

Authors
Guillano Demon

Associate Partner, Operating Model Effectiveness, Ernst & Young AG

Analytical thinker, cross-cultural connector, and change agent. Engineer. APICS and Six sigma certified. Enjoys sports, good food and good company.

Jeroen Truin

Senior Manager, EMEIA Tax Center- Operating model effectiveness, Ernst & Young AG | Switzerland

Transformation driven. Helps clients to operationalize strategies, find the right balance between operational, sustainable, (green) tax requirements. Loves spending time on his bike in the mountains.

3 minute read 26 Jul 2021

By adopting an integrated operating model approach to transactions there’s an opportunity to unlock previously untapped value potential.

EY’s latest Capital Confidence Barometer published earlier this year makes clear that M&A is a preferred strategic option as companies look to accelerate growth in the post-pandemic world. In fact, nearly half of respondents are planning acquisitions in the next 12 months. Growth, especially long-term, is on the agenda.

The emergence of unplanned disruptions such as the COVID-19 pandemic has reiterated the need to assess potential targets more broadly when it comes to resilience and contribution to long-term value of the business. The question we ask is: is there a smarter, more integrated way to look at transactions to help unlock deal potential and create more value? We argue yes, through enhancing steps of the M&A lifecycle with a view from the operating model.  

Better together: an integrated approach is key

Most acquisitions and divestitures, by definition, have a significant impact on the operating models of the companies involved, from both the sell-side and buy-side perspectives. Why not leverage this opportunity to review or redesign your current and post-deal target operating model?

Not assessing the operating models of companies involved may lead to untapped deal potential, a remaining or acquired operating model that is not sustainable in today’s challenging landscape or — specifically in case of acquisitions — unsuitable target selections or incorrect valuation.  

Intentional or unforeseen, M&A transactions impact most, if not, all dimensions of the operating model:

  • Governance, organization and employees
  • Processes
  • Systems, technology and infrastructure
  • Locations, assets and intellectual property
  • Transactional model and contracts
  • Corporate tax and legal entity structure

Traditionally, attention is turned to operating model transformation projects after the deal. Investing time upfront to think holistically through how all these dimensions can be geared toward the cause, will save a lot of time afterwards and pay out fairly quickly. For example, the upfront set-up of a centralized transactional model at the buyer can help effectively integrate an e-commerce channel of the target and reduce potential local entities in certain markets (if beneficial), and local cost and tax obligations.

Better informed valuations and target selections may play a significant role in creating long-term value and enhancing deal potential overall. Where do you start in considering operating model dimensions as part of an integrated approach to transactions?

Whether you’re buying or selling, early alignment matters.
Guillano Demon
Associate Partner, EMEIA Tax Center - Operating Model Effectiveness, Ernst & Young | Switzerland

When it comes to acquisitions, questions should be asked around the flexibility around key M&A decisions that may impact the future-state operating model (e.g. asset versus share, location of acquisition and possibility to transfer employees), synergies to be achieved and how can the new target operating model improve expected synergies? Can multiple operating models beneficially co-exist from both an operational and tax perspective? What governance and set up is required?

Turning attention to divestitures, questions should be asked around key drivers triggering the divestiture, degree of separation to manage the balance between deal value and stability of the remaining part. Is there a plan to manage stranded costs? Does the new standalone operation require a more tailored and commercially effective operating model?

Buyers buy a better target and sellers get a better price.
Jeroen Truin
Senior Manager, EMEIA Tax Center- Operating model effectiveness, Ernst & Young AG | Switzerland

Summary

There’s an opportunity to unlock value potential by adopting an integrated operating model approach to transactions. The earlier an integrated approach is taken, the higher the incremental value delivery and businesses can enjoy potential benefits such as:

  • Improved target and divestment selection
  • Improved valuation and deal value
  • Improved synergies
  • Enhanced risk management
  • Bespoke operating model
  • Alignment with the green agenda

With long-term growth on the agenda, there’s no better time to consider a more integrated approach to transactions.

About this article

Authors
Guillano Demon

Associate Partner, Operating Model Effectiveness, Ernst & Young AG

Analytical thinker, cross-cultural connector, and change agent. Engineer. APICS and Six sigma certified. Enjoys sports, good food and good company.

Jeroen Truin

Senior Manager, EMEIA Tax Center- Operating model effectiveness, Ernst & Young AG | Switzerland

Transformation driven. Helps clients to operationalize strategies, find the right balance between operational, sustainable, (green) tax requirements. Loves spending time on his bike in the mountains.