Survey Report: Navigating the Risks of the Contemporary M&A Market

CHICAGO (Dec. 15, 2016) – High valuations for targets, poor operational due diligence and fuzzy deal rationale are among the key reasons financial executives are concerned about overpaying for deals, according to the 2016 Strategic Buyer Survey conducted by Crowe Horwath LLP in collaboration with the Financial Executives Research Foundation.

The survey report examines insights on the risks inherent in contemporary merger and acquisition (M&A) execution from 180 senior finance professionals from public, private, and not-for-profit domestic and international organizations. The average annual M&A activity of survey respondents included six targeted transactions, two due diligence completions, and one deal closed. 

The survey revealed:
 

• Valuation risks. Overpaying for deals was viewed as the biggest risk in M&A by 60 percent of respondents, followed by current valuations, which 40 percent of respondents viewed as the biggest valuation risk.
• Integration risks. Successful integration was identified by 17 percent of respondents as the most overlooked risk area and one of the major impediments to ultimately realizing the full value of the deal.
• Operational transition/synergies risks. Challenges related to securing the requisite involvement, insight, and sustained focus and urgency from the operating team during the pre- and post-close periods ranked as the top concern for 58 percent of respondents.
• People/cultural transition risks. Transition risks associated with assimilation of business cultures, perhaps not surprisingly, registered as the top concern for 51 percent of respondents for domestic and international transactions.
• Internal resource risks. Limited M&A experience and availability of the internal team was highlighted as the most critical issue by 55 percent of respondents. Despite this concern, respondents weren’t quite sure when or how to bring in the necessary external help.
• International risks. Those respondents pursuing cross-border deals reported that local target identification, sales and marketing practices, and workforce transition were all formidable challenges.

“While M&A transactions remain a popular growth strategy for companies, we continue to observe that a large number of deals fail to achieve their desired financial outcomes and operational synergies due to difficult, but manageable, challenges,” said Marc Shaffer, partner in Crowe advisory services. “Deal valuation, operations team involvement, and people and cultural issues remain the most common difficulties during the planning and execution process.”

Demonstrating the breadth of deals and high stakes involved, 2015 set record levels of M&A activity with $4.28 trillion in global transaction volume, according to Mergermarket. In the first half of 2016, $1.71 trillion of deals were consummated around the globe.

“Looking ahead to 2017, CFOs and finance professionals must remain steadfast in not only their legacy responsibilities of steering financing efforts and managing transaction accounting, but also developing solid risk assessments and mitigation strategies,” said Chris Nemeth, managing director in Crowe advisory services. “While some risks are environmental in nature, many are well within the control of the acquirer to vet pre-deal and subsequently mitigate post-deal.”

About the 2016 Strategic Buyer Survey 
The Strategic Buyer Survey was conducted from May to July 2016, and the resulting analysis includes perspectives on a broad range of risks across the full spectrum of the M&A value chain, including how these risks might be mitigated. More than half of the respondents (55 percent) held the title of chief financial officer, and nearly 40 percent resided in manufacturing and distribution industries.

The centerpiece of the survey was registering respondents’ experiences with the identified risks in nine M&A execution categories. For each category, respondents ranked their top three risks on a scale of one to three, where one represented the highest level of risk or concern and three represented the third highest level of risk. In addition, respondents involved in cross-border transactions provided insight on an additional set of identified risks.

For more information and to receive the complete survey report, please visit https://www.crowehorwath.com/2016-ma-market-survey-NR.

About Crowe Horwath LLP
Crowe Horwath LLP (www.crowehorwath.com) is one of the largest public accounting, consulting, and technology firms in the United States. Crowe uses its deep industry expertise to provide audit services to public and private entities while also helping clients reach their goals with tax, advisory, risk and performance services. Crowe is recognized by many organizations as one of the country's best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest global accounting networks in the world. The network consists of more than 200 independent accounting and advisory services firms in more than 130 countries around the world.
 

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