April 11, 2016
By Martyn Curragh, US Deals Leader
Last year was a robust year for M&A in terms of both scale and ambition. And although the pace of deal-making paused early this year as executives took stock of both last year’s activity levels and renewed choppiness in the global economic environment, the appetite for new deals and strategic alliances remains as strong. U.S.-based CEOs are particularly hungry and our team has been busy helping them prepare for new deals and integrate assets that have already been merged and acquired.
Spurred by a low-growth economic environment and often concerned with the impact of disruptive new technology, CEOs are continuing to look to M&A and other partnerships as a means to support growth, improve profitability and secure long-term competitiveness. Not only are we seeing steady activity through our pipeline of deals at PwC, our recent CEO Survey also noted how for the past four years, more than one-third of U.S. CEOs have planned to complete a deal, despite fluctuating market conditions. Some CEOs even said they plan on pursuing multiple deals in a year.
The Rise of Next Generation Deal-Making with JVs and Partnerships
In recent times an emerging theme in deal making has been more focus on structuring and executing transactions tailored to organizational priorities with an eye towards capital discipline, risk management and return. This is best illustrated by the strength in demand for business partnerships, alliances and joint ventures, especially in the context of cross-border transactions.
While the desire for acquisitions continues to play a major role in companies’ growth strategies, our survey findings show that CEOs will continue to emphasize next-generation partnerships and active portfolio management to unlock value for their organizations. Findings from our survey show that among U.S. CEOs, 59 percent are planning to enter an alliance in 2016, up from 44 percent last year. About half of CEOs in the past four years indicated plans to enter new strategic alliances or joint ventures, and some executives told us that developing next-generation partnerships will be even more important to their success than acquisitions this year.
We’ve seen collaboration emerge as one of the biggest drivers of these new partnerships and ventures. Accessing new markets is still a key motivator behind these deals, but more and more, our clients are forming partnerships to accelerate innovation and access new technologies, especially digital.
C-Suite Gives Chief Integration Officer a Seat at the Deal Table
Again marking a differentiation with past deal cycles, we are seeing a more disciplined approach to integration than in the past. History is rife with megadeals gone wrong, and as deals get bigger and more complex, so does integration. With this most recent flurry of deals characterized by the size and complexity of transactions, the need to emphasize effective integration and collaboration is undoubtedly heightened.
With no signs of megadeal activity abating, businesses are displaying their focus on integration through the creation of the Chief Integration Officer, who is dedicated to and responsible for facilitating a value-accretive integration of any transactions. These individuals take on the massive challenges of unifying the new organization, achieving cost synergies and delivering on the pre-transaction targets. It is a difficult job but an important one, and attentive, high-level oversight of the integration process is crucial to ensuring that deals achieve their stated objectives.
2016 PwC US CEO Survey: How are CEOs optimizing deal value?
A Look at the Horizon
So while ups and downs are to be expected as volatility seems to be the new norm, executive teams will continue to review their portfolios to find the right paths for growth. As they execute those plans, companies must have a strategy in place to handle the increased complexity and intense pressure from shareholders demanding they demonstrate value and coherence from day one.
We may be looking at another strong year for transformative deals – I hope you’re hungry.