Q: The macro business and economic environment have significantly changed since the beginning of 2022. What impact are you seeing on deal volume and structure?
Black: The outlook for M&A deals is choppy for the rest of the year as investors face mounting market uncertainty. Rising interest rates, persistent inflation, higher financing costs, geopolitical unrest, a looming energy crisis and an economic slowdown are both driving uncertainties and creating some tailwinds around the deal environment. Rather than using M&As to expand geographies or product portfolios, corporations are sharpening their business strategies to divest non-core assets, de-risk their supply chains and focus on stabilising what they do best. As the market calibrates with the macro business environment and pushes down valuations, it will become more favourable for buyers.
While deals are happening slower in 2022 than in record-setting 2021, they will continue to get done. Companies still seek to solidify their core businesses, acquire targeted skills and capabilities, and privatise. In the face of uncertain conditions, deal professionals must clarify the best-value opportunities by rigorously assessing potential deals and executing on those already signed.
Q: What are the fundamentals around deal success in this environment?
Black: The acquisition of structural assets, such as technology and customers, continues to add value and helps drive digital transformation. Deal success still largely hinges on the rigour around cultural alignment and the ability to retain and acquire specific skills needed to deliver on the deal thesis.
Talent and people risks are often overlooked in the deal thesis; yet, in our experience, these are essential impactors of revenue synergy. Post-closure success is driven by what you start doing on Day One. Proactively understanding the talent and culture is critical to deal success. Having the right people — and enough of the right people — focused on what you do best is the secret sauce for maximising deal value.
Q: Mercer was just named a Pacesetter by ALM for excellence in M&A advisory support. Can you share some of the key reasons we earned that designation?
Black: ALM Intelligence Pacesetter Research identified Mercer as a "2022 M&A Innovator and Pacesetter." According to ALM, investors seek help from professional services providers, forcing innovators among providers into new client engagement models. Mercer has been identified as an Innovator for our ability to deliver client impact in today’s ever shifting (and very crowded) M&A markets, specifically in terms of creating a value proposition, client enablement and service delivery in M&A deals. Mercer is being recognised as a leader for going above and beyond to serve clients in M&A deals. According to ALM: "Mercer’s focus on the human capital dimension of investment theses is groundbreaking, helping clients realise full deal value both on Day One and for the full lifecycle of the asset."
We are quite proud that ALM has recognised us. Our view of human capital’s role in driving revenue synergies in deals related to culture and talent/skills is unique and aligned with the market’s needs.
At Mercer, we’ve developed methodologies and approaches to thinking about culture and talent from Day One and carrying that through to deal close. By securing insights early on, we can identify friction and pain points and proactively plan to resolve them.
Understanding the value of the talent acquired means more than knowing what job that person is doing now; it’s knowing what skills they have and what other jobs they could be doing.
For example, converting skills to fill different roles rather than conducting layoffs recognises talent and skills as a precious commodity — and one that can create or erode deal success.
Gaining such talent insight enables you to unlock skills and build future capacity by understanding the skills and capabilities employees have now and what they can do in the future with targeted development.
Savvy, strategic and financial investors are aggressively looking for ways to get more talent insights across the deal phases to make more accurate, informed and targeted decisions.
Achieving financial targets means analysing culture and talent issues with the same rigour as other strategic elements in the deal. And this is fundamental to why Mercer stands apart and adds the most significant value to clients.