Toward transaction excellence. Ernst & Young’s 2011 corporate development study

August 2011

LILIANA BUSOIU - Senior Manager - Transaction Advisory Services ERNST & YOUNG S.R.L.

 

Executive summary

To deliver value in today’s tough market, corporate development teams must focus on aligning deal strategy with corporate strategy, follow formalized processes and forge strong relationships throughout the company. Effective corporate development leaders excel in these areas.

What makes the difference between leaders and laggards in corporate development? A new Ernst & Young study shows that success depends on the level of attention paid to three areas: strategic alignment, formalized deal processes and strong internal relationships. Leaders exhibit a heavy focus on — and excellence in — all three areas, enhancing performance across the entire transactions lifecycle.

Our ongoing research on corporate development explores such issues as the role, effectiveness and structure of the corporate development function (CDF). In 2011, we embarked on a global study of current practices, an update of similar studies conducted in 2004 and 2007. For this latest study, we surveyed more than 200 executives from major global companies. Our respondents were the most senior individuals in terms of responsibility for transactions, usually corporate development officers (CDOs).

Our most notable finding is that three attributes consistently lead to stronger performance in corporate development — and heightened deal satisfaction.

These are:

1. Transaction teams and strategies that are fully aligned with corporate strategy

2. Transaction processes that are stringently formalized, repeatable and continuously improving

3. Corporate development teams that forge and sustain strong relationships throughout the company

Certainly, businesses are introducing greater rigor into the evaluation and continuous improvement of their corporate development activities. But leaders do more than merely pursue the above objectives. Those companies expressing the highest degrees of satisfaction with their transaction results also report higher than average success delivering on the three conditions.

 

Driven by capital

The CDF is expanding, participating more broadly across the whole of the transaction lifecycle as opposed to focusing on one-off transactions. Accordingly, the CDO is gaining greater responsibility. This means that the CDO and the CDF play key roles in their organization’s deployment and utilization of capital. The most successful businesses take steps to actively evaluate and manage their capital bases. As our capital agenda framework illustrates, this requires devoting appropriate resources and focus to raising, investing, optimizing and preserving capital (see Table 1).

The CDO is particularly active in both investing and optimizing capital. Acquisitions, mergers, joint ventures (JVs) and partnerships are just a few of the areas where the CDO plays a leading role in decisions and actions that commit enterprise capital. In these instances, the CDF’s investment focus includes everything from identifying targets and executing transactions to asset valuation, synergy identification and tax planning. Our study results show that a majority (87%) of CDOs either lead and perform (52%), lead only (23%) or perform only (12%) investing activities (see Table 1). Alternatively, 13% of the respondents show as not involved because CDOs often do not get involved in investor relations (59%), tax planning (26%) and transaction measurement (19%).

Similarly, the CDF plays a vital role in optimizing corporate capital deployment. A full 69% of respondents say they lead and perform (34%), lead only (19%) or perform only (16%) these activities. The leading practice is to view corporate holdings in portfolio terms. A strong CDO will continually evaluate asset values in an effort to identify opportunities to enhance return on invested capital (ROIC). This is a decidedly strategic activity, requiring the executive to evaluate how any given asset will perform in current hands versus by a change in ownership.

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