A PwC and Mergermarket study of 600 global senior corporate executives has found that only 61%* of buyers believe their last acquisition created value. However, acquirers that prioritise value creation from the onset of the deal outperform their industry benchmark by 14% on average 24 months after completion, while divestors that prioritise value creation can outperform industry peers by 6% for the same period.
Although value creation strategies are becoming vital to long-term success, the study shows that 53% of acquirers are underperforming their industry peers, on average, over the 24 months following completion of their last deal based on total shareholder return (TSR). Similarly, 57% of divestors are underperforming their industry peers, on average, over the 24 months following completion of their last deal based on TSR.
Despite these figures indicating that many deals fail to realise the value that they intended to generate, those deals that prioritise value creation can generate a significant amount of value. So what exactly are the factors responsible for creating value in deals?
The Creating value beyond the deal report explores how corporations – both on the buyer and seller side - approach value creation throughout a deal. Using industry data, interviews with senior corporate executives, and academic support from the Cass Business School, the research team analysed eight years of transaction data to determine what made them so successful.
Malcolm Lloyd, Global Deals Leader, PwC comments: “As dealmakers are coming under increasing pressure to deliver more value from their M&A activity, companies that establish rigorous criteria for value creation early on in the buying or selling process are best positioned to maximise the returns from the transaction.”
Three main considerations emerged from the research:
The conversations with corporate executives show that companies that genuinely prioritise value creation early on – rather than assume it will happen as a natural consequence of the actions they take as the transaction proceeds – have a better track record of maximising value in a deal.
"It was interesting to see that only 34% of acquirers say value creation was a priority on Day One (deal closing) in their latest deal, though 66% said it should have been a priority,” says Malcolm Lloyd. “This highlights the need to continually evaluate and refine the way value creation is approached within organisations.”
John West, Managing Editor, EMEA, Mergermarket, comments: “This fascinating research shows just how often value is left on the table following M&A – and how frequently dealmakers don’t even realise it. Drafting value creation plans cannot just be a box to tick to get the deal over the line. There needs to be execution post-close.”
Dr Valeriya Vitkova, Cass Business School, comments: “Too often in the past phrases like ‘strategic fit’ and ‘cultural match’ have dominated justifications given for acquisitions, without any ‘hard’ evidence provided for these claims. The analysis presented in this report provides excellent insights into what really matters in deals and perhaps as importantly, what doesn’t matter.”
You can download the report on www.pwc.com/deals-report
Notes for the editors.
*This was obtained by asking 600 global corporate executives “How much value has this deal created for the underlying business relative to the purchase price?”
At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 158 countries with more than 250,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PwC does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
© 2019 PwC. All rights reserved. Definition: PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.