Time to think bigger and be bolder to create value

For buyers, sellers and private equity investors, the bar for deal value creation is rising. As a result, your business needs to create more value in more ways than before. To succeed, value creation now needs to be transformational rather than incremental.

As we look ahead, one thing is certain, value is going to be harder won.

You can no longer rely on favourable market conditions to sustain growth and returns. In turn, stubbornly high inflation is forcing up funding costs and driving down consumer confidence.

This is also an economy that’s changing before our eyes. While grappling with the economic headwinds, you still need to meet continually rising consumer and investor expectations on sustainability and digital engagement and delivery.

The old playbook isn’t enough

In this ultra-challenging environment, what might have worked in the past, won’t now.

While traditional value levers such as synergies, financial engineering and tax are still important, they’re not enough to deliver the target EBITDA on their own.

Similarly, while controlling costs is more important than ever, savings can be quickly swallowed by the levels of investment needed to keep pace with stakeholder expectations, or value can be eroded rapidly during transition of ownership due to heightened competitive pressures.

Transact to transform

What’s clear is the need to go further and faster to deliver earnings targets. From a dealmaking perspective, this means shifting from incremental to transformational mindset and approach to value creation – what we at PwC call ‘transact to transform’.

In practice, dealmaking may be the only way to deliver substantive change within the timelines dictated by shifting stakeholder expectations. Even with longer hold periods, transformation may also be the only way for private equity to drive the uplift in EBITDA and multiples needed to achieve a successful sale. Looking specifically at carve-outs, identification of the transformational value potential and laying the foundations for change can boost saleability and bid value.

What’s also clear is that the combination of new technology and a fast-changing economy are creating a unique window for transformation. This includes unleashing the full value from your data, embracing partnership and ecosystem delivery and turning cloud transition into a platform for innovation, agility, new routes to market and operational excellence. Operationally, you can use the need to shore up supply chains and transition to net zero as the starting point for a whole new way of running your business, engaging with customers and going to market.

Realising the potential

While transformational deals open up new and significant value creating possibilities, they also present heightened execution challenges and risks. So how can you maximise the upsides, while controlling the risks? Three key priorities stand out:

1. Go further in identifying the potential
2. Bring it all together
3. Don’t forget about business-as-usual

1. Go further in identifying the potential

In embracing bold strategic ambitions, it’s important to ask yourself “what is the transformational potential within this business prior to the transaction?”

The possibilities may not be immediately obvious. Indeed, we often find that the ‘lightbulb moment’ only occurs when the business is opened up to the kind of rigorous assessments carried out during due diligence or integration planning.

Our analysis can help you to put hard numbers on the potential uplift, and a strategic execution plan grounded in pragmatism, enabling you to pinpoint and prioritise the levers that can deliver the most value for your particular business.

2. Bring it all together

It’s important to have partners or people within your business with expertise in both transacting and transforming, who are unencumbered by legacy thinking in the business.

Together they can create a blueprint that brings together the transformational and transactional potential. They can then work together to identify the value levers for delivering on this potential, draw up a roadmap for execution and orchestrate delivery.

This joined up approach avoids the risk of creating visions for the future that aren’t realisable in practice. It also helps you to look at the bigger strategic possibilities rather than focusing on a particular aspect of operational transformation in isolation – cloud transition or decarbonisation, for example.

3. Don’t forget about business-as-usual

Transformational transactions take time to deliver and can create potential disruption within the core business. The funding of these transformations is a critical aspect to the value case. Passing key functions to a managed service provider can allow management to focus on realising the value potential, while sustaining business-as-usual during the transition. As well as helping to run the operations such as HR and finance, our execution managed service team can advise on ways to improve efficiency.

If you would like to discuss any of the issues raised in this article or find out how you can unleash the transformational potential within your business and deal strategy, please get in touch.