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Consumer Markets Industry Leader, PwC US
The pressure is on CEOs to evolve their businesses, achieve measurable outcomes and generate value more quickly. In our 27th Annual Global CEO Survey, 45% of CEOs told us they believe that their companies won’t be viable in 10 years if they stay on their current path. Meanwhile, many investors are more impatient, with many seeking positive financial results from deals in months instead of years.
Often companies are under do-or-die pressure to transform themselves continuously by capitalizing on new opportunities. Acquisitions, divestitures and other types of deals can accelerate transformation, but C-suite industry leaders should determine the appropriate funding options while still helping deliver value for investors.
How can executives execute on this high-stakes tightrope walk? Here are three strategic approaches that can help business leaders fund faster transformation through deals and create value while they do it.
1. Embrace transformation with tech-enabled strategies
For many companies, technological transformation can be the guiding force in both their long-term success and their ability to generate value quickly. The challenge is often in turning the tech transformation opportunities in a deal into reality once the transaction has closed and integration begins.
Rather than thinking in sweeping terms, often executives focus on agile, smaller-scale digital investments. These should focus on clear outcomes — like improving customer experience, strengthening customer relationships, speeding up innovation. Smaller scale efforts are usually faster to carry out and therefore can generate revenue to fund further transformation more quickly.
Analytics platforms can help monetize and extract value from data the company already possesses. Strong analytics also can speed up decision-making and help industry leaders know sooner what the ROI will be for new products, new services and initiatives to boost margins.
Many CEOs believe AI can help them improve quality, change the way the company captures value and make their industries more competitive. Companies should focus on AI as a tool that can augment, amplify and improve human capabilities in ways that are uniquely tailored to their industry. Multidisciplinary teams will be critical to developing transformative products, services and processes that harness the power of AI.
The bottom line: Agile investments in focused digital transformation, including AI, can often allow companies to show a positive ROI more quickly and set the stage for long-term reinvention.
2. Free up capital through divestitures
Strategic divestitures can help drive transformation by releasing resources that can be reinvested in technology and used for strategic acquisitions. Along the way, companies can reshape themselves as business units that no longer fit the corporate strategy can be sold or spun off. Proceeds from divestitures can fund both organic and inorganic business transformations.
Successful companies often conduct regular portfolio reviews, identify divestiture opportunities, determine the divestiture approach (sale, IPO, etc.), negotiate transactions and then separate the company — quickly and efficiently.
Speed can be a key. Industry leaders are sometimes tempted to delay a divestiture due to valuation gaps or a belief they can “fix” the business. But delays have opportunity costs. Many companies often pour additional capital and time into businesses that aren’t good strategic fits — only to find that they’re worth less months or years later.
Delaying a divestiture can also mean putting off reinvestments into initiatives that better align with corporate strategy — and therefore could offer higher returns. This delay in transacting to transform can significantly weaken a company’s competitive position.
3. Create value by proactively managing tax considerations
The tax environment is becoming more complex. Rules are changing rapidly in countries around the world and tax authorities are taking a more active stance — including through initiatives such as Pillar Two. Tax planning throughout the deal life cycle, from identifying opportunities through post-deal integration, can help companies reduce costs, avoid surprises and create more value.
Strategic tax planning starts on the front end by considering the deal thesis and evaluating the tax impacts on cash flows and investment returns. As a potential transaction heads into negotiations and due diligence, tax risks and liabilities related to deal structure as well as legacy assets and operations should be identified. Many companies may find opportunities in this stage to enhance deal value through proactive tax planning. Finally, post-deal operating decisions can have tax consequences, so thinking through those decisions is critical.
As with post-deal integration efforts and go-to-market strategies, involving tax early in the process — ideally during the deal screening and letter of intent stages — increases the likelihood of a successful deal that improves tax opportunities. Deal structure, financing choices, potential ESG tax credits and other tax-related decisions can free up cash to fund transformation.
Businesses should move faster
Change is no longer cyclical or periodic. It’s continuous. To adapt, survive and thrive in this new environment, companies should learn to be comfortable with ongoing change. They should continue to scan their competitive landscape to understand how they should pivot to stay ahead of competitors while continuing to deliver results for investors and customers. “What we need to be saying more often is if this change we’re undertaking doesn’t feel uncomfortable enough, we’re not pushing ourselves fast enough,” Tom Puthiyamadam, Transformation Consulting Leader at PwC, said recently.
Deals and transformation are not mutually exclusive nor synonymous. A focus on technology transformation can yield excess total shareholder return. The successful companies are those planning multi-year strategies that combine investments in innovation, deals that reshape portfolios and smart tax strategy.
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