Value Creation in Deals — from Risk Minimization to Value Generation

Value Crea­tion in Deals — from Risk Mini­miza­tion to Value Generation

Corpo­ra­tes as well as private equity firms are under more pres­sure than ever before when it comes to tran­sac­tions. On the one hand, they have to gene­rate posi­tive returns; on the other, they have to cont­end with growing chal­lenges. Fluc­tua­tions on the global stock markets lead to valua­tion uncer­tain­ties, and the economy is threa­tened by a down­turn. Tech­no­lo­gies are in flux and pene­tra­tion into previously untes­ted markets is up for discus­sion. In this chal­len­ging envi­ron­ment, the topic of value crea­tion beco­mes all the more important. 

In a 2019 study commis­sio­ned by PwC 1), 600 mana­gers from various indus­tries and regi­ons were surveyed on value crea­tion in the M&A envi­ron­ment. The majo­rity of mana­gers see an urgent need to ques­tion and adapt their own approa­ches to value crea­tion. This applies to value crea­tion approa­ches for both acqui­si­ti­ons and divestments.

Those compa­nies that prio­ri­tize value crea­tion at the outset of the tran­sac­tion under­stand how to maxi­mize enter­prise value, accor­ding to this study. On the other hand, the result remains less successful for those compa­nies that assume that an increase in value would gene­rate itself by simply conti­nuing the busi­ness. If value crea­tion is negle­c­ted in the tran­sac­tion process, value enhance­ment poten­tial often remains untapped.