Many corporate development teams insist on a proprietary process to source the best deals, but from the outside the sourcing process may become ad hoc and opportunistic. This discussion looked at methods for reviewing financial performance and strategic operational value from past acquisitions to model optimal buy-side transactions and guide the deal sourcing process.

Clark O’Niell, Managing Director in the EY-Parthenon practice of Ernst & Young LLP, began the conversation asking the participants how they use data analytics, especially from their own portfolios, as part of their deal sourcing practices. O’Niell asked what sources they generally look to when assessing deals and how corporate development teams should analyze those data points.

Charlie Rice, Senior VP of Corporate & Business Develop at Akamai Technologies, kicked off the session noting that utilizing different information sources, including customers surveys, is imperative. By combining and aggregating internal and external data sources, the corporate development team can develop awareness of the full universe of prospective targets.

Sanjay Kacholiya, VP and Head of Global Business Development at GE Digital, suggested everyone’s job should be sourcing, not just the corporate development teams. However, involving larger teams in sourcing requires a concerted management effort across business units that may require regular training and oversight.

ASSESSING CAPABILITY GAPS

The panel next discussed how to set priorities when choosing which sources and analytical tools to use. Much of this discussion revolved around assessing capability gaps and stepping back to prioritize opportunity sets across the potential targets. “You don’t start with M&A and then figure out strategy from there, it goes the other way around,” said Kacholiya, suggesting that setting priorities requires forethought and preparation.

The conversation then switched gears to discuss diligence. Specifically, corporate development professionals always want access to more and more data and analytic tools, but they may inadvertently imbalance their priorities and resources with too much diligence. Both Kacholiya and Rice mentioned that as deal quarterbacks, corporate development should focus their diligence requests to targets so as not to be over-burdensome. In his own deals, Kacholiya goes so far as to remind targets that “they control the spigot of information.”

The participants additionally addressed how a portfolio review can lead to further analysis and difficult decisions. “The first four quarters are very important to setting trajectory,” noted Rice, “we’re committed to tracking for two years by quarter.” The panelists described this period of intense scrutiny almost as an “escrow period,” with the quality of data deteriorating over time after the deal has closed.

WHEN TO DIVEST FROM THE PORTFOLIO

When asked how the panelists assess divestitures, Rice noted that it’s important for a company to practice “regular hygiene… be thinking objectively about its portfolio” to determine when a divestiture is appropriate. If the business is not living up to the requirements of the original business case for the acquisition, a disposal might be an appropriate action to free up capital to fund higher-growth acquisitions.

Concluding the discussion, the panel covered the pros and cons of internal portfolio reviews and whether such reviews are subject to management bias. The panelists acknowledged an external review would truly bring a fresh perspective, but an internal review also has merit because of participants' access to internal data.