Throughout my career, either working in the Transport & Logistics sector or as an advisor, I have seen firsthand the transformative potential of M&A. However, it can of course be challenging to deliver the value intended, meaning that developing a comprehensive and realistic value creation plan up front is more important than ever. PwC’s recent research provides interesting insights to support this imperative.
Transport & Logistics globally is a growing sector, which is expected to continue at an overall rate of around 5% p.a. driven by population growth, increasing GDP per capita and the long-term trend towards globalisation which makes more complex, more geographically spread supply chains common (in spite of recent protectionism). E-Commerce has also been growing at around 16% p.a. globally, meaning that on top of macro-economic growth, both demand and supply side factors are increasing the levels of logistical activity.
And yet, despite this global growth, it feels like a really tough sector to operate in. There are solid performers but relatively few superstars, and plenty of casualties. Global growth hasn’t translated into a nice structural tailwind for the sector to enjoy as a whole. Value creation falls disproportionately.
There are a number of things that lie behind the dynamic and sometimes challenging environment T&L businesses face. At the heart of it is that customers are demanding ever higher standards of speed, availability, variety, reliability, customisation and personalisation, and all at a lower cost. This drives supply chain innovation, competition is fierce and the nature of competition is changing with increasing collaboration and co-opetition. And of course, technology is having a huge disruptive influence, whether software, data & analytics, or robotics and other hardware. In particular, software and asset-light business models are infiltrating incumbent asset-heavy, operationally geared sectors.
The sector is therefore constantly looking for ways to meet changing expectations and develop or adopt emerging technology and other capabilities. In efforts to create value, we’ve seen large incumbent players investing in software upstarts to access new markets, new business models, new capabilities and enhance the core business. We’ve seen incumbent mega-mergers because this is a sector where scale matters. And there is something of an M&A arms race amongst software players to build out the breadth of service and geographic coverage, and even interestingly to dip their toes into acquisition of complementary physical assets.
For T&L businesses, which face this dynamic environment, value creation and actually value preservation from dealmaking will be crucial because they will need to meet customer expectations, support innovation and drive change, getting more out of their M&A, even just to keep up.
What if you took a different perspective to your M&A?
Recently we surveyed over 600 global corporate executives to uncover how they seek to create value through M&A. From my experience in the sector and as evidenced in the research, the value creation lessons are clear, as I discussed in our recent Transport & Logistics Executive event.
Of course, it starts with strategy, and any M&A strategy should clearly align to that strategy, but having a value creation plan for specific targets must be integral from the start. In the past, people may have thought firstly about engagement with a target, then due diligence, and then 100 day planning. Really, we should have a value creation plan upfront, and engagement and due diligence enable us to validate and refine the component parts of that value creation plan dynamically. In the report, only 34% of acquirers surveyed say value creation was a priority on Day One (deal closing), though 66% believe it should have been a priority.
Another very consistent finding of PwC’s research was the importance of factoring people and culture into deal-making decisions. Tellingly, for acquisitions that ultimately destroyed value, 100% of respondents cited cultural issues as one of the factors. We shouldn’t forget that in most cases, acquisitions are made because the target has features or capabilities that the acquirer wants, so having a clear plan to retain key people, preserve a successful culture, and enabling the acquired business to continue to thrive is essential.
This article was originally posted on PWC.