What is an M&A Center of Excellence?
This year Deloitte has reported that 76% of M&A executives at U.S. corporations and 87% of M&A leaders at domestic private equity firms say the number of deals they will close over the course of the year is on the rise. With more and more M&A transactions taking place (a pattern that is predicted to continue), we see another pattern emerge in the M&A landscape: those who were once occasional acquirers becoming frequent acquirers.
When moving from occasional acquirer to frequent acquirer, companies need to look inward and think about how they are scaling things, organizing teams, and handling dependencies. This naturally ties into the trend of M&A Centers of Excellence. Developing a Center of Excellence (CoE) is a practice many expert practitioners and large companies are engaging in because it accelerates M&A and yields successful deals where synergies once discussed on paper are actually captured.
Goals and Steps of CoE:
The following outlines the steps industry experts have used at major companies to develop their Centers of Excellence.
1. Gain buy-in from leadership
2. Create goals and success criteria
3. Define governance structure
4. Establish progress management and develop a toolkit
5. Design training programs and partnerships
How to Develop a Center of Excellence
1. Gain buy-in from leadership:
The first step is to gain buy-in from executive sponsors, initially the leader of Corporate Development, then moving on to the other M&A executives at your company. It is important to note here that involving individuals early is proven to increase buy-in; when people feel they have a say and a chance to give input, they are more likely to support a project. With this in mind, it is critical to also get M&A functional leaders involved early.
2. Create goals and success criteria:
The goal of a CoE is to store M&A practice knowledge - in a sense, capture the knowledge base, provide support for integration, and facilitate continual improvement. To assist the monitoring of success, some CoEs have project managers use scorecards where all of the objectives (such as synergy and revenue of the cost savings) are laid out. The scorecard has green, yellow, and red dots for ranking purposes and is then shared every couple of weeks with each functional leader, providing input on the status of his/her integration goals. While the scorecard is ultimately the integration leader’s responsibility, the CoE plays a large role in its development and tracking.
3. Define governance structure:
When developing a M&A CoE, it is critical to clarify what the CoE will own and what the business itself will own. Additionally, this is the time to truly decide how the CoE will support integration and what the COE is responsible for. For instance, in some companies the CoE helps to establish integration budgets and early integration strategy planning..
Finally, looking at competencies and talent (bringing the right people in) is part of this step. Namely, for optimum success, the leader of the COE must be credible, highly experienced, and highly respected (this will also help gain buy-in from others). CoEs should have at least one full time employee and then utilize part time participation from other various roles.
4. Establish progress management and develop a toolkit:
Toolkits provide resources related to best practices and past lessons learned to help teams work efficiently and methodically. Some toolkits provided by CoEs are related to understanding synergy targets, diligence, integration project management, change management and on-boarding.
5. Design training programs and partnerships:
When designing training programs, it again comes down to supporting integration. At some companies, each time a new integration team launches, the team must attend a training session that is specific to their deal. Other training programs may be provided if someone on the integration team has never participated in integration before.
Additional Tips From Expert Practitioners:
• Consider the user when creating the CoE’s website. Is the website intuitive? Is it easy to navigate for the average person? How will all of the valuable information be organized? What are the main categories?
• When launching the CoE, it is critical to have people with project management and change management skills - these individuals know how to drive the work and get buy-in. Remember the work the Center of Excellence does is essentially meaningless if it is not embraced and utilized.
• Conduct a feedback loop with the practitioners the CoE has supported - as well as the target company (through a separate survey).
• Formal “lessons learned” after each deal are essential for identifying process improvements, and these lessons should be organized and stored in a database that is easy to access for future use.
As the occasional acquirer becomes a frequent acquirer, reflection on M&A practices is imperative. Centers of Excellence provide a community of high-level M&A professionals that can drive best practices and process improvements through knowledge transfer.