Mergers and acquisitions create market expectations that management teams must meet. If they don’t, the company’s value deteriorates. In reviewing a listed company’s planned alliance, investors will calculate how much additional value it will achieve by generating synergy benefits. This will be reflected in a revised price for the shares. Management must then meet these expectations just to break even — to keep the share price at its expected post-deal level.
They can only add additional value therefore by exceeding expectations. Most management teams fail to achieve this. However, whilst it is commonly accepted that the M&A challenge is daunting anyway, the defence industry offers particularly difficult circumstances.
Integration is expensive. So companies must be selective in deciding when it is necessary and the value proposition must be clear. This applies not only to mergers and acquisitions but also to existing groups that own a range of businesses diversified by geographic location, by customer or capability.
In groups that have grown, both organically and by acquisition, the increasing span of control will create a major challenge to management. Defence contractors will continue to aspire to grow — if nothing else, their increased size will keep them on the shrinking preferred supplier lists of the majors — and will therefore need to integrate business operations both to unlock value from the portfolio and make it easier to manage and direct.
How PricewaterhouseCoopers can help you
At PricewaterhouseCoopers, we can help you determine the right role and structure for your corporate centre, to assess accurately the value potential within a proposed transaction, to integrate business operations and achieve synergies in order to create value, to retain and motivate your people through change … and to communicate effectively with your shareholders.
