DealMakers - Q3 2023 (released November 2023)
The role of internal Corporate Finance teams in M&A dealmaking
by Taskeen Ismail | Old Mutual Group
Global deal activity has slowed; however, M&A remains an important strategic capital allocation lever for financial services groups.
According to Refinitiv, the American-British global provider of financial market data and infrastructure, the $2,9bn in ‘announced’ sub-Saharan African (SSA)-based merger and acquisition (M&A) deals in the first quarter of 2023 was 80% lower than the prior year, marking the lowest first-quarter value in 20 years. While deal volumes were not as severely affected, they were still 30% lower than in 2022.
This declining trend was also evident in South Africa. According to DealMakers SA, there were 118 local M&A deals, with a total value of approximately R64bn, finalised in South Africa in H1 2023. This performance was down from the 166 local deals with approximately R284bn in finalised value achieved in the first half of the prior year.
Meanwhile, the Old Mutual Corporate Finance team has been kept busy by a range of strategic M&A deals, which helped expand our capabilities and physical reach across our various businesses. Recent transactions included the acquisition of equity stakes in Preference Capital, Versma Administrators, Primak Brokerage, Genric and ONE Financial Services.
The most significant deal-making ‘moment’ over the past two years came courtesy of the company’s transformative Broad-Based Black Economic Empowerment (B-BBEE) ownership transaction – named Old Mutual Bula Tsela (Sesotho for “pave the way”) – which makes Old Mutual the first financial services provider in South Africa to facilitate an offer of shares to the black South African public (via our Retail Scheme), and the first issuer to make room for those earning lower incomes.
So, you have closed an M&A deal. Now what?
Media coverage on M&A deals seldom explores what happens once the ink on the share transfer forms has dried and the deal becomes effective. In our experience, this is the moment when the proverbial rubber hits the road. As the internal advisers to company boards and executive teams, we are called upon to provide sound and considered advice about a wide range of M&A-related matters, both before and after deals have closed.
Internal corporate finance teams help to ensure that M&A transactions are bedded down in line with the terms and conditions agreed to by all parties to the deal. One of the important roles that we play is to take observer seats on the acquired company board, to ensure that what we thought we were buying is indeed what we bought, and that the integration plan unfolds as planned.
Immediately following an acquisition, you can expect to see a flurry of workshops to ensure an alignment of corporate cultures, delegations of authority and risk appetites, among other factors. These are made easier by the relationships that corporate finance teams have established with the management team at the target firm over the course of negotiations.
During negotiations and in the process of closing a deal, the acquired firm’s management and staff would have had very limited engagement with the employees at the acquiring firm, which can make the integration process tricky. It is also worth noting that the relationship shifts from one of pre-acquisition negotiation to one of co-operation and mutual support, post-acquisition. An internal corporate finance team, therefore, plays an integral role in creating long-term value for stakeholders, both before and after the M&A transaction closes.
Aside from getting your capital allocation decisions spot on, it helps to define and agree on an internal set of criteria to ensure that everyone involved in decision-making on M&A deals understands what you are aiming for. The ultimate goal of M&A deals is to build a group that is worth more than the sum of its parts, in a way that strategic relationships and organic growth cannot achieve.
Key factors to unlock synergies post-execution of an M&A deal include embedding accountability through agreed key performance indicators and ensuring that adequate time is allowed for post-acquisition implementation before rushing headlong into the next deal.
Being part of an internal corporate finance team is incredibly rewarding. You get to see the envisioned value creation unfold a few years down the line, and to build relationships with various management teams across multiple lines of business. And, of course, you soak up the learnings on offer from the “baptism of fire” that goes with being immersed in the commercial, risk management and strategic decision making of diverse executive teams. You get to digest and onboard these experiences, carrying them with you into your next M&A deal.
Ismail is Head of Corporate Finance | Old Mutual Group.