Achieving better business outcomes with deals and transformation: PwC

Colin Wittmer

PwC US Chief Financial Officer, PwC US

Consumer Markets Industry Leader, PwC US

Many businesses are looking to reinvent themselves for a range of reasons — from broad trends, such as technological and supply chain disruptions, climate change and demographic shifts, to organization-specific issues, such as outdated business models and new customer demands. In fact, roughly 40 percent of global CEOs think their organization may no longer be economically viable in ten years if it continues on its current course.

Transformation may not just be about surviving in an evolving business environment — it is also about learning to thrive in it. As new research from PwC has found, many top-performing companies use mutually reinforcing investments, including M&A activity designed to acquire the right capabilities, to help create non-linear advantage.

Simply doing a deal may not automatically help companies achieve their transformation goals. What can help differentiate the leaders from the pack? We believe success comes from understanding market trends and focusing on your cohesive, connected, holistic vision for the future across strategic, operational and financial measures.

Perspectives from PwC leaders with Ali Furman

Transformation Consulting Managing Partner, PwC US

How you can help drive transformation through deals

The market can often be impatient, and deals can produce outcomes faster than organic change and growth. Deals can be disruptive but also help catalyze and accelerate organic efforts. Transformation can be accelerated by M&A, or M&A can be the trigger for transformation.

The deals market is dynamic, and companies should be able to leverage M&A while navigating volatility in everything from valuations to funding levels to capital costs. At the same time, many buyers and sellers have significantly evolved over the past two decades. Most companies are willing to pursue more complex deals, with more insistent synergy targets and more compressed timelines to help deliver value. And the evolving regulatory landscape continues to influence how deals get done.

To leapfrog the competition, you need a coherent strategy behind portfolio management — including divesting to acquire — and other M&A activities and their execution. Most industry leading organizations leverage their executive team to increase value, both as a function of the transaction (such as near-term synergy targets) and beyond, which is where the connectivity to transformation can yield exponential returns.

Most industry leading companies also plan a multi-year journey that helps them thrive with a series of carefully orchestrated initiatives — both deals and transformation investments — to help achieve success. Deals and transformation are neither mutually exclusive nor synonymous. But a symphonic focus on inorganic growth, portfolio optimization and business reinvention can help yield excess total shareholder return.

Transact-to-transform is about the choreography of these strategic imperatives to help achieve long-term shareholder value faster. Here are four things that can help drive transformation and improve the odds of generating greater shareholder value.

Embrace complexity and the opportunities it presents. As more buyers and sellers are willing to take on increasingly complex deals, traditional playbooks are getting thrown out. Remember, a challenging business initiative can be an opportunity if you are creative and innovative. Deals can provide you with the resources and political capital to make changes that would meet intense resistance under normal circumstances. It is a good time to consider how you can improve or transform parts of the business and incorporate those initiatives into your post-close plans. Your deal might affect more people, more sites and more functions than initially anticipated, and it is important to prepare for the potential risks and wider implications at the outset as well as to create more frequent checkpoints throughout the deal journey.
Don’t be afraid to have parallel paths. Multiple deals and transformation initiatives could be happening at the same time and in different phases — and that can be true across industries and different incarnations of deals. It’s important to focus on more than simply closing the deal. Open the aperture and consciously focus on transformation while you’re still transacting, rather than waiting until everything is closed when it’s too late. That is why, as reported in our M&A Integration Survey, many successful companies are investing in integration earlier. In fact, long-term operating models are in development earlier in the deal cycle, with 60% of companies planning before due diligence. These companies are developing thorough, multifaceted operating models that help enable them to jump-start critical integration activities with transparent direction and purpose.
Focus on outcomes. The importance of measurable go-to-market goals and synergies seems to have increased in recent years, as growth in market share and access to new markets, brands, products and technologies have become more crucial. Our M&A integration survey found that successful M&A organizations were more than twice as effective in achieving go-to-market goals, from revenue generating opportunities, such as pricing, product and service solutions to efficient demand-driving operations. In addition to having a clear vision for your deal, you should have a clear follow-on plan for how the transformation journey rolls out over time. That means trying to implement an agile methodology with recommendations for outcomes-oriented business goals that you can measure in weeks and months rather than in years.
Commit to a culture conversation. If you’re doing a deal, you have to think about how it could affect — and leverage — your culture every step of the way. That can be because culture is one of the key enabling levers that can help make or break a transformation. First, make sure you have the courage to change and understand the inherent biases within your organization. Then understand how a deal aligns with the future focus of your company and what’s in it for all of your people. Be transparent and talk about it. Create and share a clear, compelling story with all stakeholders, including your employees, board members and investors. Culture and change management should be at the front and center of your transformation strategy.

Companies are pursuing transformation through deals while simultaneously trying to grow and scale their business. To help navigate that level of complexity — and achieve business transformation and reinvention — objectivity, ingenuity and experience can be necessary. Many successful organizations will leverage a transact-to-transform mentality and choreography of these strategic imperatives to achieve measurable business outcomes and long-term shareholder value faster.

The importance of integration

Effectively integrating two companies is crucial for transformation and creating value in a deal. But this may not be sequential — integration is a component of, not a prerequisite to, transformation.

Organizations that can achieve significant success across all three integration measures — strategic, operational and financial — can be rare. As reported in our most recent M&A integration report, only 14% of the 2023 survey respondents said they had achieved this level of success.

Companies can help enhance their chances of integration success by investing more in the process, increasing the amount of integration experience and beginning planning earlier, among other strategies. Our M&A integration report includes more insight regarding how integration can positively impact deal outcomes.