Before there is agreement on a merger or acquisition in 2013, dealmakers will be much more focused on the panoply of risks involved – regulatory, environmental and labor – and will carry out more extensive due diligence than in the past, according to a panel of senior M&A specialists.
The special circumstances surrounding the new deal environment were the focus of a conference hosted by The Deal at the New York Stock Exchange in November. Entitled “Global Dealmaking in 2013: Why the Best Strategists Will Dominate,” the panel included Anne Madden, vice president of corporate development at Honeywell International Inc.; Hilton Romanski, vice president and head of corporate business development at Cisco Systems; Aileen Stockburger, worldwide vice president of business development at Johnson & Johnson; and James D. Rosener, a partner with Pepper Hamilton, chair of the firm’s International Practice Group, and managing partner of the firm’s New York office. The discussion was moderated by Suzanne Miller, a senior editor of The Deal.
The discussion took place against a background of declining deal volume, with many companies apparently sitting on the sidelines until the presidential election and fiscal cliff negotiations were concluded. According to Dealogic, U.S. M&A totaled $971 billion in 2012, down 3 percent compared with the year before. Even in Asia, which had been a bright spot, M&A was off 5 percent last year.
Despite the reduction in the number of deals, the panel noted that each of their companies managed to get deals done last year. In some cases, there was a technological imperative, where they had to invest to keep current with such developments as movement toward cloud computing. In other cases, companies saw a chance to achieve growth by adding businesses in related fields, perhaps in different markets. Pharmaceutical giant Johnson & Johnson, for example, spent $20 billion to acquire Synthes, a maker of medical devices.
One area the panel agreed on was the new focus on risks and how to avoid them. Hewlett-Packard’s announcement that it had taken an $8.8 billion writedown on the value of Autonomy, the British software company it bought in 2011, highlighted the risks involved in making a major acquisition. The German engineering company Siemens also paid a $450 million fine for violations of the U.S. Foreign Corrupt Practices Act, which illustrated the potential pitfalls of doing business in countries with different legal standards.
As a result of these concerns, the panel said their firms were now much more focused on conducting intensive due diligence, including the hiring of outside experts and local investigators, especially in foreign countries, to ensure that the parent company does not suffer damage to its reputation or finances in the process of making an acquisition.
The panel was generally upbeat about the outlook for 2013, saying that they continued to see opportunities for their firms by making acquisitions, or in some cases, disposing of assets that were not living up to expectations. The recent decline in deal volume and drop in initial public offerings had also combined to make company owners more reasonable in their valuations, they said.
Click on the image below to view a recording of the panel entitled “Global Dealmaking in 2013: Why the Best Strategists Will Dominate” from The Deal Economy 2013 conference.