Seeking Alpha:      The Value of Transaction Management in Mergers & Acquisitions

By Charles R. Brettell, Principal

Energy Asset Solutions, LLC

March 2, 2010

The most important component of any transaction isn’t the source of the deal-flow, financing structure or legal documentation, it’s the execution of the processes around getting from interest to integration.  In this installment of “Seeking Alpha,” we’ll investigate the case for Transaction Management as the key value driver in a deal, the data that supports that conclusion, the strategic value of Transaction Management for your firm and the reasons it’s so often given short shrift.

Read the first piece in our two-part “Seeking Alpha” series, below.

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Transaction Management, also called Transition, Merger Integration or Project Management, can be defined as a set of services that facilitate the maximization of value throughout the acquisition & integration process of a deal.  While responsibilities vary across engagements, the role of the Transaction Manager generally incorporates the scoping, planning, managing, executing, advising, reporting, reviewing and refining of all activities from due diligence through completion of post-merger integration.

In the process of getting from the identification of a target to the incorporation of that asset in your management portfolio a lot has to be done – and done right – from Day One.  As a result, planning and execution are critical components that get you from interest to integration.  That said, a remarkable number of organizations appear to simply “kick the can down the road” during the integration planning and implementation phases; the results can be devastating.

As anyone involved in it can tell you, M&A activity is expensive and time-consuming.  Worse yet, done badly, it can destroy value faster and more completely than almost any other activity a company can undertake.  A recent study by Business Week / Mercer concludes that “. . . of completed mergers, only 27% increase value, while 23% provide no change and 50% destroy value . . . “  And, according to Booz Allen Hamilton, it’s the processes around planning & execution where transactions most often breakdown – “ . . . more mergers fail due to inadequacies in integration rather than to any other fundamental failure of strategic concept . . .”  The reasons given for this failure were many, and read like a list of corporate deadly sins, including:

• “Weak planning”
• “Lack of focus”
• “Slow decision-making”
• “Ineffective and poorly-timed communication”
• “Failure to include culture”
• “Visible lack of alignment of management” and
• “Waiting until close to ‘start’”

So, why is Transaction Management so often ignored as a component of a successful deal?

• Cost, Not Value, Focused – With an eye on bottom-line results, the price of Transaction Management is often easier to calculate than the value it creates.
• Misplaced Responsibility – Many simply assume that either the business development staff or lawyers will manage planning & integration efforts, something that is almost always outside the scope of their engagement, responsibility or expertise.
• Misperception – Transaction Management looks easy when done well by seasoned professionals leading to the belief that Transaction Management can be handled by any available resource, no matter how junior or inexperienced.
• Good Fortune – Here, one of two possibilities exist.  Senior leadership has either 1) had Transaction Management (albeit, with a different nomenclature) and never realized it (this can happen where organizations embed operational roles in business development because of a prior bad results) or 2) never suffered the avoidable consequences of a botched deal on their watch.

If Transaction Management merely solved for above-described weaknesses, you’d be hard-pressed to explain to your shareholders or investors why you don’t utilize Transaction Management as a key component of every deal.  But Transaction Management applied as a strategic solution also creates the opportunity to:

• “See around corners” to avoid unpleasant surprises and capture incremental value;
• Stimulate innovation, creativity & optionality in every deal, across your organization;
• Accelerate the pace (and reduce the cost) of acquisition & integration activities, allowing you to do more with the same base resources;
• Allow your resources to focus on their core responsibilities rather than the many & varied details of a single deal, and
• Assure a unified view of the transaction from start to finish

Now that we’ve made the case for Transaction Management as a fundamental component of every transaction, it’s time to switch gears and talk about the various models you can deploy to acquire Transaction Management skills, best-practices to assure successful Transaction Management efforts and the time-honored art of making the individual instruments of a company come together like an orchestra for every deal you do.

And that’s exactly what we’ll address in the second part of our "Seeking Alpha" series coming next month.

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To learn more about EAS’ Transaction Management practice, visit our website or simply click here to have one of our practice professionals personally respond to your inquiry.