According to analysis of worldwide deals in 2007 and 2008 by global professional services firm Towers Perrin, transactions are being completed almost twice as quickly as they were a year ago. The average duration from announcement to completion has plummeted from 142 days in 2007 to just 80 days in 2008. This figure is likely to fall further as more deals are hastily wrapped up before the year end.
"Market turmoil has conjured up the concept of Express M&A, a high-speed deal process affecting all sectors where new ways need to be deployed to protect value," said Marco Boschetti, Towers Perrin's Head of Global M&A and Restructuring. "But increased speed brings increased risk and makes prioritisation critical."
"We are seeing significant elements of due diligence effectively being postponed until after completion," Marco Boschett added. "The concept of 'seize the day' is changing conventional M&A processes as the threat of future potential surprises pales next to the scale of savings or strategic value that might be achieved."
Towers Perrin is working with several leadership teams to help them manage the speed of change and choose the key actions from the deal timetable. Critical elements of the deal process — from leadership retention to practical execution planning — are occurring at a much faster rate, while considerations such as rewards analysis and cultural integration are being postponed until after completion. The firm's advice to acquisitive companies is to build into the financials some margins for the unexpected.
Recent "shotgun" mergers in financial services during the last two quarters were fueled by the imminent threat of company collapse. However, with depressed market values in most sectors, the time from a deal’s announcement to its completion is falling across the board, heralding Express M&A.
Marco Boschetti said, "The period from deal announcement to completion in the last few months has contracted significantly. Safeguarding a company's future via sale or restructuring has become a lightning priority in the face of deteriorating market conditions. Express M&A is here to stay for some months yet, particularly as those with liquidity snap up bargains. But will it become a fixture when any kind of normality returns to global corporate activity, or is it just a passing fad?"
"Coping with the speed of M&A could well be one of the enduring legacies of the current turmoil," said Marco Boschetti. "Working through deals with clients at this time, we believe it is important to try to draw lessons from our experience of the new challenges presented by Express M&A."
Deal Speed Analysis
Towers Perrin examined all deals with a value greater than US$2 billon (more than 500 deals) announced since the beginning of January 2007 and before the end of September 2008. The firm examined actual deal announcement dates and actual deal close dates. For current deals yet to close, where market evidence exists that they will close before the year end, expected deal close dates were used.
By industry, the only sector with a statistically significant sample was financial services, where the duration was in line with all other sectors.
Changes to M&A deal process
"Traditional" deals still exist; for these, the usual M&A approaches are, and should continue to be, followed. With Express M&A, deal processes have changed dramatically and are being truncated to meet commercial and market necessity. Due diligence in the pre-announcement phase is being replaced by a post-deal fact-finding process to establish exactly what has been bought.
Towers Perrin recommends three priorities from the lengthy list typical of traditional M&A to ensure that employees are on board and the deal has the best possible start for success:
* Tap the talent. Make sure you know who you want, fast. Pay them well, find out what other incentives they need, and sign them up. The value of the new business will drop without the right people on board.
* Show and tell. Don't keep the strategy to yourself. From the start, be clear about your aims for the business and how it's going to work.
* Manage expectations. Not all answers will be available on Day One. Indeed, more uncertainty than usual will exist upon change of control. Ensure all stakeholders are aware that time will be required after the deal close to plan the integration details. So buy yourself some time.