Demystifying corporate development: Preparing to benefit from economic cycles

In the first article of our “Demystifying corporate development” series, we debunked myths around corporate development’s role in an organization. In this article, we will explain how a strong corporate development function can help companies take advantage of opportunities throughout economic cycles through front-end strategy development and planning.

Corporate development’s role in planning prepares companies for changes in economic cycles and consequential changes in M&A activity

Economic downturns lead to increased M&A activity during the crisis itself (e.g., the distressed-driven restructuring and regulatory-driven deals recently seen in the banking sector), as well as on the upswing as companies with better access to capital seek opportunities to invest and take advantage of consolidation opportunities.

Companies can prepare and plan for these events through strategy creation. Corporate development is at the center of an organization’s front-end strategy development, building and reviewing business plans to ensure cohesive and consistent execution against the company’s mission, key priorities and competitive advantage. This strategy acts as a playbook for the company to execute non-Business as Usual (non-BAU) activities in times of opportunity such as periods of economic uncertainty. In these times, corporate development should ramp up their activity to ensure readiness.

To prepare for economic uncertainty, corporate development should always monitor the overall macro-outlook and leading indicators such as jobless claims, consumer savings rates, debt profiles, interest rates, etc. Understanding how each indicator directly correlates to the company’s performance and integrating this perspective into planning enables companies to choose how to best ensure success in execution, no matter the broader market conditions.

Corporate development’s role in strategy development and execution enables optionality

In order to take advantage of the opportunities created by downturns, corporate development should frequently review strategic objectives, evaluate liquidity and reload target pipelines. Early and consistent engagement in strategy development enables the company to act with agility and speed when opportunities arise.

Corporate development conducts buy vs. build analyses to assess the impact of expanding either organically or inorganically to determine how to execute the company’s strategy. To support this assessment, corporate development should build and continuously update a pipeline of potential targets and assess a preferred target’s appetite for a deal. Being proactive helps the company discover more diverse targets and determine how to best combine with the targets (i.e., acquisition, joint venture, partnership, etc.). Preparation for these opportunities provides companies with agility, fresh thinking and a higher tolerance to withstand disruption like economic downturns.

Corporate development’s preparedness and planning enhance a company’s credibility

Planning not only enhances a company’s readiness and prepares the company to act well before opportunities arise, but it also builds the company’s credibility as a buyer. Opening the door to a greater possibility of outcomes underscores the importance of a strong internal process for assessing, capturing and executing deals. A likely byproduct of strong internal processes is increased success rates in transactions, thereby creating a virtuous cycle that enables a company to attract the interest of potential sellers as the preferred buyer of choice. This dynamic further adds to a company’s optionality when pursuing strategic opportunities.

Conclusion

Corporate development is at the center of an organization’s front-end strategy creation, which enables the company to harness its competitive advantage, ensures readiness in times of economic uncertainty and strategically positions the company in the marketplace — holistically setting the business up for long-term success. Join us for our next article to find out how establishing a strong governance structure helps promote long-term success while positioning the company as a buyer of choice.

If you have any questions, or are looking to learn more, please feel free to reach out or visit pwc.com.