Deloitte Survey: Executives Lack Confidence in M&A Financial Forecasts

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Jun 13, 2013, 09:00 ET

NEW YORK, June 13, 2013 /PRNewswire/ -- Only one-quarter of executives are very confident in the accuracy of the financial forecasts they use to support Mergers & Acquisitions (M&A) deal decisions, according to Deloitte's fourth annual Corporate Development survey. This finding demonstrates the high level of uncertainty in predicting M&A deal success in the current environment and may help explain the disconnect between heightened expectations for M&A market growth earlier this year and the lackluster deal activity that has persisted.

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The survey, which assesses how companies are managing strategic transactions, found that 75 percent of respondents believe they could improve the accuracy of their deal analyses but lack a crisp understanding of exactly how to correct their course. In fact, 43 percent of respondents are not able to detect any pattern in their forecasting errors and only one-fifth have M&A business case forecasts that are consistently accurate.

"Forecasting quality is a critical component of M&A success," said Chris Ruggeri, principal, Deloitte Financial Advisory Services LLP and leader of its M&A practice. "While accuracy is important, deal teams should strive to generate useful insights that can be used to inform judgment about a deal and to develop mitigation plans or contingent deal structures that respond to potential variances in the forecast."

The Corporate Development survey results show little change in the expected uptick of deal activity among respondents. Nearly half of respondents this year (49 percent) anticipated an increase in deal activity. In 2012 the figure was similar at 46 percent. Furthermore, when placed into a broader economic context, it is anticipated that M&A activity will likely remain at current levels.

"The relatively stable year-over-year survey findings suggest that the anticipated deal activity will likely remain at its present pace unless something changes," said Ruggeri. "Potential catalysts for increased activity include a surge in corporate earnings, a higher pace of economic growth, or more regulatory certainty in industries including financial services and health care."

For the first time, the survey also explored the use of social media in M&A deal-making. One-third (34 percent) of respondents reported already using social media for M&A. More than half (56 percent) of executives believed that social media could play the greatest role in identifying targets, and 30 percent cited social media's role in due diligence. Social media use in M&A is anticipated to grow as companies continue to look for opportunities to gain competitive advantages and as regulators, such as the SEC, begin to allow dissemination of public company press releases and other market-moving information via social media.

"Social media is the new frontier in the M&A space. As companies try to gain competitive advantages, we think they may increasingly use social media platforms to collect information, draw insights and ultimately identify new targets," said Marco Sguazzin, principal, Deloitte Consulting LLP.

Additional survey findings:

M&A Decision Process Three-quarters (75 percent) of companies reported having a clearly-defined M&A decision process, but only 19 percent rated the efficiency of the approval process as excellent. However, companies that complete more deals were more likely to have a well-defined decision process and to consider its efficiency as excellent.
Corporate Venture Funds Roughly one-fifth (19 percent) of companies reported already having a corporate venture fund, and almost half (47 percent) of executives expected the number of corporate venture funds in their industry to increase over the next two to three years, citing access to technology, new product innovation, and new market entry as the key benefits driving the growth of such funds.
Data Analytics Forty-one percent of companies reported using technology-driven analytics in M&A, either as a core component (12 percent) or in select areas (29 percent), and another 17 percent said their companies are considering it. The most frequent uses in the context of M&A were to analyze customers and markets of target companies (52 percent), evaluate the potential synergies of a deal (29 percent), and assess the target's workforce and compensation schemes (24 percent). "Data analytics" refers to the practice of using data to drive business strategy and performance.

About the Survey

Deloitte's annual Corporate Development survey looks at trends in M&A and assesses companies' effectiveness in managing strategic transactions. The online survey was completed in April 2013 by 435 professionals involved in M&A. These professionals were located in the U.S. (76 percent), Europe (10 percent), Asia/Australia (4 percent), and Canada (8 percent). The remaining respondents were located in Central America, the Middle East, and Africa. Respondents comprised heads of Corporate Development/M&A (28 percent), Corporate Development executives (19 percent), Controllers and others in finance (10 percent), Corporate Development staff (8 percent), as well as CEOs/presidents (7 percent), and CFOs (7 percent). The remaining respondents were board directors and executives in HR, tax, accounting, and other functions involved in M&A.

Respondents represented both public (60 percent) and private (40 percent) companies. Here is a look at how the companies surveyed broke down in terms of annual revenue: 23 percent had revenues of more than $10 billion, 11 percent had revenues of $10 billion to $5 billion, 24 percent took in between $5 billion and $1 billion, 42 percent had revenues less than $1 billion. For the purposes of the survey, "corporate development" refers to a broad range of activities that support and enable M&A-related growth.

To download a copy of the survey, go to www.deloitte.com/us/pr/corpdev2013.

As used in this document, "Deloitte" means Deloitte LLP and its subsidiaries. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

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