Carole Streicher
Partner
National Service Group Leader
Deal Advisory & Strategy
In a recent KPMG survey of top executives across six industry groups, 90% of executives say that their deals are more complex and riskier.”
View full report
Deals and deal making have become more complex. Increasingly, deals are aimed at ambitious strategic goals—transforming operating models or acquiring digital capabilities—that take companies to a new frontier.
This is all taking place against a backdrop of intense competition for targets, soaring valuations, new investor demands around ESG, and macro challenges, such as challenged supply chains and labor shortages. For M&A executives this means taking on more operating risk, pursuing new kinds of synergies and taking a more holistic approach to value capture.
In this report we show deal makers how to meet these challenges by mounting a quest for strategic value, relentlessly pursuing synergies and preventing value leakage with a more robust execution model.
More than 81% of executives say they now rely more on revenue synergies to make deals work.
Success today requires extraordinary synergies—cost synergies, revenue synergies, ongoing performance improvement, and nontraditional synergies, such as “network” and “market power.”
Revenue synergies are critical
Extraordinary synergies
Explore the insights
Navigation
Transformative deals: M&A-led transformation that alters the commercial, financial and cultural profile of the buyer require different approaches to value, diligence and modeling, and intense scenario planning related to downside risk.
Drivers of deal complexity
Overview
Understanding the 7 main drivers of complexity:
View Full Report
According to these leaders, the two top sources of complexity are:
Transformative deals rising across industries
Complexity over time
The extraordinary synergies required by
high valuations
Deal theses’ based on transforming operating or go-to-market models
Transformative deals have the strategic potential to instantly propel buyers into new markets or competitive positions.
Acquisitions of tech companies by non-tech buyers (a proxy for transformative deals) rose 68% from 2020 to 2021 and deal value rose 145% to $91B.
Recent growth in non-tech companies buying tech assets to transform their business
VIEW FULL REPORT
Complexity intensifies in different types of transactions. On the KPMG complexity scale, we measure intensity for seven sources of complexity, including transformative deals, extraordinary synergies and more as part of our comprehensive value audit:
How complexity builds
Understanding complexity
5 practical moves to improve your odds of success in complex deals
Improving success
Extraordinary Synergies
Supply chain constraints
Multi-step deals
Transformative Deals
Ambitious revenue synergies
Talent and labor dynamics
Cross-border deals
ESG factors
In our research, we looked at complexity in two ways: the degree of difficulty created by specific complexities and how multiple complexities in a deal compound.
Understanding the degree of complexity of any transaction at the start is essential. Unforeseen complexities can cause delays in execution, increase potential for value erosion, sap momentum and delay synergy capture. The market rewards acquirers for synergies delivered, not forecasted, and often punishes acquirers who fall short of their synergy goals.
Extraordinary synergies: Elevated M&A valuations require buyers to stretch value creation beyond traditional cost synergies and achieve results with greater speed—raising the stakes and the risks.
ESG Factors: ESG has become a big factor in M&A target evaluation and decision making, often the ESG maturity of a target company can increase deal complexity, particularly if a target has limited or no ESG programs in place.
Multi-step deals: Regulators often require divestiture of certain assets to avoid anti-competitive effects which can slow down transactions and complicate the deal process by requiring simultaneous carve-out and integration efforts which, in turn, can undermine the original deal math, increase business disruption, postpone value capture and increase tax costs.
Cross-border deals: Complexity tends to rise with the number of countries in the acquisition’s footprint given cultural, regulatory, legal and international tax challenges.
Talent/labor dynamics: Talent risks can quickly undermine deal value. Motivating and retaining talent is more difficult when buyers cross industries or acquire tech startups, and can be even more challenging in today’s tight labor market.
Supply chain constraints: Global supply chains designed to boost efficiency and reduce costs can now impose higher costs and create risks for companies across industries.
>81%
Our analysis of deals,
worth more than $2 billion,
revealed a 27% increase in acquirers expecting to realize revenue synergies.
27%
INCREASE
2015–2017
2018–2021
Complexity factors
Low Complexity
High Complexity
TRANSFORMATIVE
DEALS
EXTRAORDINARY
SYNERGIES
ESG
FACTORS
Bolt-on/merger of equals
Cost synergy focused with
minimal revenue synergy
Advanced ESG program
New capability or business model acquired
Revenue synergy impact of 15% - 25% in Year 2
Limited compliance-focused ESG
Enterprise transformation
Revenue synergy impact of more than 25% expected in Year 2
Pre-ESG
In this report, KPMG breaks down the changing complexities that businesses need to understand and address to identify, protect and
create the most value in their transactions.
FS
ENRC
TMT
C&R
HLS
IM
Drivers of deal complexity
Transformative deals growing across industries
How
complexity builds
5 practical moves to improve your odds of success
Multiple/multi-step transaction
Single
transaction deal
Concurrent
multiple acquisitions
Concurrent multipleacquisitions and multiple divestitures
TMT Consulting Industry Leader
Deal Advisory & Strategy
Chad Seiler
Principal
Transaction Execution Lead
Deal Advisory & Strategy
Jeff Wilson
TMT Consulting Industry Leader
Deal Advisory & Strategy
Chad Seiler
Principal
Transaction Execution Lead
Deal Advisory & Strategy
Jeff Wilson
Explore sources of complexity
Make strategic value your north star
1
Play offense to win during diligence
2
Get a running start
before Day 1
3
Adopt a people strategy for the times
4
Think continuous value creation
5
The ultimate payoff from complex deals is often strategic value—new opportunities or new
ways of doing business that build long-term value. These deals transcend traditional synergies.
The strategic goals of the transaction, therefore, must be clearly defined, widely supported, and pursued methodically and relentlessly.
Diligence can no longer be a ‘check the box’ exercise to validate baseline assumptions. It’s your opportunity to identify even greater sources of value and explore the art of what’s possible with target management. It’s also an opportunity to ensure your own organization is clearly aligned
around key levers of value.
Complex deals demand a different approach to Day-1 readiness—one with greater purpose, intensity, and speed. Sophisticated buyers use the sign-to-close window to protect business momentum, find and mitigate blind spots, continue to seek even higher synergy upside, and accelerate tailored integration planning.
More than ever, the value of a target lies in the capabilities, energy, and culture of its people.
Tight and evolving labor markets raise the risk of losing talent—and reduce the likelihood of quickly finding replacements. To make complex deals work, you need a people strategy fit for
today’s talent realities.
Buyers define synergy targets at the outset, but they shouldn’t stop there. Be alert to new
opportunities that arise and prepare to flex as markets, leadership, and strategies evolve.
View full report
View full report
View full report
View full report
View full report
While every transaction requires a tailored approach, you can overcome obstacles and improve your outcome by applying these principles to the common challenges of a complex deal.
In this report, KPMG breaks down the changing complexities that businesses
need to understand and address to identify, protect and create the most value in
their transactions.
View full report
Learn how to meet these challenges
Cross-border transactions
and footprints: Complexity tends
to rise with the number of countries
in the acquisition’s footprint; cultural, regulatory, and legal challenges multiply.
Workforce: Retaining talent can become more challenging if the acquirer and target have disparate cultures or ways of working.
Ambitious revenue synergies: Targeting cost cuts or revenue increases of 10% or more in the first two years can put intense pressure on everyone involved
in a deal.
Outsize multiples: Deals at multiples higher than the industry average are significantly more complex because of the pressures they impose on acquirers to justify the premium.
Business type or size: A bolt-on
is typically straightforward.
Vertical or horizontal integration tends to be more difficult, as is
a cross-industry deal.
Multi-transaction deals:
Acquisitions followed by divestitures can disrupt operations and relationships, and demoralize employees and other stakeholders. Some of the most extreme complexities arise when acquisitions and spin-offs occur simultaneously across countries.
Transformative deals: Having to make a digital transformation or adopt new operating or commercial models increases the risks of delay and disruption.
Volume
Value ($B)