Companies that intend on growing inorganically (through M&A) have to invest in building out this function as a core capability.
Though the “face of the deal” is usually the corporate development team, a number of skill-sets are required in order to consistently source deals, get transactions across the finish line and ultimately create long-term value through M&A.
Here are the most common teams that comprise a successful M&A function – with some commentary on the skillsets that fit well within these teams.
1. THE “BUSINESS”:
This is “P&L owner” and often the General Manager who is the ultimate sponsor of the deal.
Though technically not part of the “M&A team”, this individual is key to the success of the transaction since they should be responsible and held accountable for delivering on the promise of the deal.
The Business should be excited about the deal, and should own developing the business case for the acquisition including driving the assumptions around:
strategic rationale (i.e. why do the deal?)
near and long-term growth projections
go-forward cost structure
synergies that can be realized (both revenue and cost synergies)
investments needed
role of the target’s management in the new organization
how the target business will be integrated into the existing Business
Note: The #1 place I see deals get side-tracked is when the Business is a passive party to the transaction and / or is not actively engaged and involved in developing the business case
2. THE CORPORATE DEVELOPMENT TEAM:
This is the group that is responsible for “putting the deal together”, including:
working with the Business to build the business case for the deal
owning the valuation for the business
process management from sourcing to close to integration (Note: some organizations have the Integration team reporting into the Head of Corporate Development and some have a separate Integration Head – see below)
negotiating the key commercial terms in the purchase agreement, and having a strong opinion on other contract terms that affect the deal (though the Legal team typically negotiates the details of the agreement)
A good corp dev person is just as good at building consensus and driving decision making as he / she is at building financial models and presentation decks.
Usually ex-investment bankers gravitate to this role because the work is very similar to what a banker does.
The one exception (and something that usually trips up bankers looking at corporate development roles) is that the corporate development role is much more internal-facing as compared to an investment banker’s role (which is more client-facing).
3. THE BUSINESS DEVELOPMENT (BD) TEAM:
Not all organizations have a separate BD team but the ones that plan to do several M&A deals a year do.
This group is “out in the market” talking to potential targets, building relationships, and is responsible for adding deals to the M&A pipeline for the Corporate Development team to execute.
Often, the leaders in this team have multiple years or decades of deep industry experience, and have a deep appreciation of strategic trends, growth areas and industry / target risks.
The BD team should at the very least be involved until the LOI is put together (and the BD person is then off finding more deals for the pipeline).
4. THE STRATEGY TEAM:
This team is usually tasked with “putting the puzzle pieces together” to determine how the industry will change over the next few years, and what approaches the company should take to adapt and grow.
The strategy team’s perspective is broader than M&A – they look at organic growth opportunities, M&A, partnerships and divestitures and the team is usually staffed with ex-strategy consultants (McKinsey, Bain, BCG etc.).
5. THE M&A LEGAL TEAM
This team is responsible for facilitating the contract review, drafting, and negotiating the sale and purchase agreement (SPA).
The best practice is to engage the M&A legal team as early on in the process so that they can influence the deal strategy and ask thoughtful questions that impact even how the LOI is drawn up.
6. THE INTEGRATION TEAM (ALSO CALLED “TMO” FOR TRANSITION MANAGEMENT OFFICE OR “IMO” FOR INTEGRATION MANAGEMENT OFFICE)
This team is most involved in running the integration playbook after the deal closes but should have inputs (like the Legal) team from the very beginning.
The Integration team has strong viewpoints on deal synergies, integration expenses, capital expenses, and numerous other areas of the deal from retention bonuses to key employees to integrating systems and processes.
In my experience, a good IMO resource is very well connected within the full organization and is adept at getting the right individuals across the company plugged in to provide inputs.
7. THE FUNCTIONAL AREAS
These are the various internal supporting teams (usually 8-10) spanning Finance and Accounting, Human Resources, IT, Tax, Treasury, Environmental, Real Estate, Intellectual Property, Compliance who understand
not only the core business of the company but
also the expertise to understand how to diligence a target in an M&A scenario
The functional areas are heavily involved in due diligence and are typically tasked with going “narrow and deep” into the target’s business to identify business risks.
FOR CEOS LOOKING AT JUMPSTARTING INORGANIC (M&A) GROWTH, WHAT ARE THE TOP 4 THINGS TO KEEP IN MIND?
1. FOR LONG-TERM SUSTAINED RESULTS, SET UP THE RIGHT TEAM STRUCTURE AND ROLES
In the short term, it’s okay for the same individual to wear multiple hats (a well-rounded corporate development person can design strategy, build an M&A pipeline, execute the transaction, and integrate the business).
But in the long term, specialization (in a collaborative environment) yields more consistent results
2. PUSH FOR BUSINESS ENGAGEMENT WITH THE M&A TEAM
Over the long term, a mediocre M&A team with strong engagement from the GMs (P&L owners) will deliver better results than a strong M&A team that operates on its own island.
CEOs should force this collaboration consistently, even if it means an initially slower pace of deals.
3. INVEST IN THE M&A TEAM AS A LONG-TERM FUNCTION
Since deals tend to stop and go, CEOs sometimes have the inclination to unwind the M&A team during slow years and plan to build up the roles again when needed.
While some amount of trimming the team during slow deal periods is natural, the muscle memory of the M&A team (organizational relationships, understanding of the business, minefields in past deals) is a very valuable resource that takes 2-3 years to build up – so be thoughtful about the staffing of the team and preserving institutional knowledge.
4. CONSIDER FRACTIONAL HELP TO TEST THE WATERS
Bringing on a fractional team or resources is a good way to start small, and ramp up quickly, with relatively low risk.
The right fractional Head of Corporate Development or an M&A resource can help put in place a number of processes and the structure in 2-3 months, allowing you to scale the team over time.