Although 2007 was a record-setting year for global mergers and acquisitions
(M&A), the current credit market suggests that conditions will become significantly more challenging for acquirers in the immediate future. Banks and other financial institutions have been particularly hard hit – analysts estimate that sub prime losses could reach $400 billion, and with their balance sheets in disarray, banks have not been eager to fund new transactions. Investor’s Business Daily estimates that sponsor deal volume will fall 30 percent in 2008 and strategic deals will fall 10 percent. Because of these conditions, lenders are now imposing tougher hurdles on dealmakers and forcing them to better articulate and justify their future expected cash flows.

Of course, even in tough times companies will continue to make acquisitions.
However, today’s difficult financial environment will put added pressure on companies to succeed. Companies that are fortunate enough to finance their deals will understand that they have a smaller margin of error. Managers who are relying on new synergies will find themselves racing against the clock to prove that their value proposition is real and to satisfy the terms being enforced by lenders. In addition, the softer economic times will further challenge acquirers to capture new revenue synergies, which will place more importance on faster cost-reduction initiatives. Any deviations between actual results and the original forecasts will place added scrutiny on a transaction’s economics.

What this means for acquirers is that achieving success in today’s environment is both more important and more challenging. Since many companies have not historically been successful at creating value through M&A, corporate development teams need to quickly focus on how to improve their M&A approach.

The good news, however, is that there are still some companies that have proven how to continually succeed at M&A. Although only one-third of transactions create value, according to analysts many of these are represented by a concentrated set of companies. In other words, many “successful” transactions are executed by companies that achieve success on a regular basis (i.e., 75 percent of the time or more). Further, many of these companies share certain organizational characteristics—ranging from how they operate to how their teams are structured. These commonalities suggest there are a few specific measures an organization can adopt to greatly improve its results. According to a KPMG study, Doing Deals in Tough Times, they include using due diligence to examine a wider range of business issues; using corporate development teams to monitor post-deal results; dedicating the right people to the integration team; using a PMO to manage cross-functional interdependencies; and focusing on stabilizing the organization post-close.

The KPMG study aims to take a closer look at these measures. It examines the most meaningful differences between the M&A teams that are consistently successful
(referred to in this paper as “M&A Champions”) and the rest of the market. Further, this study examines the unique operating characteristics that Champions believe have the greatest impact on their success. This research focuses on understanding the practical side of these characteristics, so that any company can quickly implement these leading practices and increase its success rates.

Repurposed with permission by KMPG LLP. Study available here.