Creating value beyond the deal

Canadian insights

Driving transformative value creation in deals

Canadian dealmakers face increasing pressure to quickly deliver a new deal’s anticipated value. Yet all too often, deals fail to realize promised synergies and achieve the expected value.

We worked with Mergermarket and Cass Business School to survey more than 600 corporate executives, including more than 40 Canadian respondents, to show how business leaders can raise their game when it comes to creating value through mergers and acquisitions (M&A). Our analysis shows Canadian corporate dealmakers understand what needs to be done and what changes they need to make to achieve their strategic goals:

  1. More than four out of five Canadian dealmakers would put value creation at the top of their deal priorities right from the start if given the chance to do their last deal over again.

  2. They’re paying closer attention to culture throughout the deal process, as most recognize culture issues have hindered value realization in the past. Successful dealmakers make culture an integral part of deal planning and don’t assume it will happen naturally.

  3. Canadian dealmakers recognize the need to approach deals with a clear strategic vision by identifying the right targets aligned to their strategy.

  4. More Canadian dealmakers than their global counterparts acknowledge the need to bring a critical eye to their sale and purchase agreements (SPAs) so no value is left on the table.

Companies that prioritize value creation are more likely to enhance deal value, outperforming peers by up to 14%. So how can you make sure your plan hits its targets and creates value in the short and long term?

We explore the Canadian findings from the global Creating value beyond the deal report.

Stay true to the strategic intent

Organizations needs to approach deals as part of a clear strategic vision and align deal activity to the business’ long-term objectives.

Prioritize the right deal targets

Deals are more likely to create value when they’re tied to the company’s strategic vision and planning. So while opportunistic M&A can create value, it does so less frequently than those based around strategic planning, including portfolio reviews and deal identification.

In Canada, one-third of dealmakers found spotting the right deal challenging. This may be due to historical cross-border issues (e.g. foreign exchange and international trade relations). We also expect this challenge to grow as cross-industry deals become more prevalent (e.g. the alcohol industry entering the cannabis market) and management casts a wider net of where to play.

“Companies with a track record of successful, value-accretive acquisitions have a well-defined M&A strategy and guardrails that guide the deal process and thesis for each acquisition target.”

Rami El-Cheikh, Partner in Value Creation focused on strategy
Recommended actions

Know the corporate priorities: 
Understanding your business strategy helps you focus on the right targets and assess a deal’s strategic fit—especially important as companies look for deals outside their industry.

Build value creation into your company’s strategic vision: 
Embedding detailed synergy identification, execution and integration plans into your strategy will help you realize future value.

Explore all aspects of a deal as early as possible: 
The most successful acquirers are those who engage in extensive pre-deal activity, which helps them create the most value.

Unlock the value in SPAs

Dealmakers often use the pricing mechanics in SPAs to extract or defend deal value, but this can lead to counterparties feeling slighted by known or perceived losses in a transaction. Canadian deal negotiations often centre on building trusting relationships, especially in minority investments, partnerships and joint-venture transactions. These often result in amicable negotiations and smooth transitions.

“Good reputations are especially important in our close-knit deals community, where trust is developed over time,” says Oksana Horsman, National Leader, Contracts and Closing Mechanisms. “Dealmakers sometimes overlook opportunities to gain deal value from nuanced financial aspects of the SPA. And occasionally, they can be surprised by aggressive pricing positions taken by their opponents, particularly when transacting in a global deals market.”

Recommended actions

Before the deal, know your negotiation points: 
Before talks begin, it’s important to identify financial targets and likely negotiation points in the SPA. Carefully consider your preferred price mechanism (i.e. closing accounts versus locked box).

Rely on trusted advisers throughout the deal: 
Get the advice you need on negotiations and contract wording to make sure the SPA reflects your intentions.

Preserve value post-closing: 
Take steps to protect or enhance deal value through SPA closing mechanisms like closing balance sheet true-ups, leakage review, earn-out adjustments, disputes and reps and warranty claims.

Develop a value creation blueprint

Companies should establish a thorough, effective process for conducting deals that drives the necessary diligence and rigour in terms of value creation across all areas of the business. This process isn’t a mere checklist—it’s a blueprint for achieving comprehensive value.

Make value creation a priority from the start

In deals that created significant value, more than half of global respondents made value creation a priority from the start—but only a third did so in their latest deal. Looking back on their last deal, more than four out of five Canadian respondents admit they should have made value creation a bigger priority. This knowledge gives Canadians the edge on their next deal, with most recognizing the need to develop a plan to create value rather than assume it will happen naturally.

“Value-creating acquisitions have different Day 1 priorities. They focus on value creation, operational stability and customer retention, not operating model changes or rebranding.”

Tom Vandeloo, Partner in Value Creation focused on integrations

In the Canadian market, we’re also seeing more of our clients use data and analytics to identify and quantify value creation opportunities across the deals life cycle. "Those who are effective at taking a more data-driven approach are getting an edge in terms of identifying new opportunities and quantifying a robust value creation plan that can be successfully executed, ” says Mike Shea, Partner, Value Creation, focused on data and analytics.

Recommended actions

Think about deal strategy early:
Doing so helps you work out a deal rationale for value realization, identify and prioritize targets, accelerate deal planning and approvals, and reduce execution time.

Cover all the bases:
Build a value creation plan that addresses strategic repositioning, business performance improvement and balance sheet and tax optimization.

Drive value with deal analytics:
Armed with data insights, you can make decisions that boost your bottom line, uncover new synergies or efficiencies and accelerate deal value realization.

Establish a clear synergy plan

Our research shows 69% of buyers who established synergy plans gained significant deal value, and 70% of buyers without synergy plans lost value. Canadian companies responded that they rely more on revenue synergies (61%) than their global peers (46%). This could be because Canadians may have US expansion as a key deal driver.

The research also highlights how important integration planning can be to creating value. Nearly all (93%) global respondents who reported significant value creation in their last deal say they invested 6% or more of their total deal value in integration. More than half of all Canadian respondents (39% globally) say their most recent transaction resulted in moderate value being created, and 41% admitted they could have done a better job committing more resources to integration, compared to 26% globally.

“The majority of buyers said their last deal achieved value had established synergy and technology plans. Whether buying or selling, have a synergy plan. Develop a business case early and regularly validate the plan and underlying assumptions.”

Joe Rafuse, Partner in Value Creation focused on operations
Recommended actions

Identify targets and build a synergy plan:
Once high-value opportunities are uncovered, a synergy plan should evaluate shareholder impact, develop preliminary financial models and establish a baseline to validate synergies. Business cases (i.e. initiatives to drive value) with qualitative and quantitative information should be developed and regularly reviewed.

Consider common areas of synergies:
Your plan should look at multiple levers, such as revenue growth (e.g. cross-sell opportunities), working capital optimization and cost synergies in areas like operational efficiencies, people and technology. What’s more, avoid surprises by considering potential dis-synergies as well.

Track and report on the value captured:
Identify who will be responsible for achieving synergies and use rigour with each critical value driver (e.g. formal business case and project plan, which includes tasks, dates and deliverables). Track and report on synergies based on periodic management reporting and maintain this discipline to drive accountability for results.

Put culture at the heart of the deal

Failing to plan for cultural change can significantly diminish the value created by any deal. That’s why keeping people top of mind in deal planning and execution is important. Communicating the value creation plan builds engagement and helps gain the buy-in from your people.

Make culture an integral part of deal planning and execution

From our experience, organizational culture issues are often overlooked during the deal process. Tackling them early helps companies when integration begins. It’s risky to assume recently acquired staff will simply adopt the buyer’s culture: 82% of global respondents who saw significant value destroyed in their most recent deal reported losing more than 10% of key talent post-deal. And more than half (59%) of Canadian dealmakers said culture issues hindered the realization of deal value.

“Talent retention appears to correlate positively with value creation. Companies that underinvest in addressing culture and integrating talent tend to have less successful deals. What’s more, 46% of Canadian respondents say they could have done a better job of understanding culture pre-deal.”

Bill McLean, Partner in Value Creation focused on people in deals
Recommended actions

Identify critical workforce issues early:
The ability to bring cultures together should be a key factor in deciding whether or not you do the deal. Savvy dealmakers identify crucial team members before an acquisition and make sure they’re given an incentive to stay.

Get the right leadership and objectives in place:
Will there be cultural differences post-integration? Define your leadership team and organizational structure, assess culture and identify impacts of changes to be addressed through specific strategies.

Communicate during deal execution:
Effective communication can shape staff morale, influence market reaction, impact customer attitudes and more. These cultural issues can have an effect on a transaction’s success and the value created.

Don’t take value creation for granted

With rising economic uncertainty on the horizon, business leaders will find themselves facing greater pressure to make sure new deals create the expected value. Our research shows that to have the best chance at success, dealmakers in Canada and globally will need to make value creation a central focus of every deal—from start to finish.

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Our Value Creation practice has nine partners and more than 70 team members, providing an integrated approach to value creation and making sure no value is left on the table:

Contact us

Sean Rowe

Partner, Value Creation Leader, PwC Canada

Tel: +1 416 815 5093

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