The Ultimate Guide to Corporate Development - All Questions Answered
With many businesses currently utilizing mergers and acquisitions (M&A) to grow, there has been an increase in the creation of Corporate Development teams and leadership roles at major companies.
Additionally, these new Corp Dev officers are playing larger and larger parts within their companies, perhaps a direct consequence of said companies maintaining more active pipelines and being more advantageous with their deal sourcing.
Following this domino effect, it becomes increasingly important for practitioners on all sides to understand the purpose, strategies, and organization of Corporate Development teams.
With this in mind, DealRoom team prepared a complete guide to Corporate Development.
What is Corporate Development (Corp Dev)?
Corporate Development serves as an internal team of company employees focused on finding ways to grow and add value to a company and is responsible for carrying out transactions such as mergers and acquisitions, joint ventures, divestitures, strategic partnerships and more.
What does Corporate Development do?
Corporate development team members generate strategies that allow the company to enter into new markets, new partnerships, or perhaps to engage in mergers and acquisitions. For companies interested in M&A, Corporate Development spends a great deal of time establishing a M&A strategy and then deal sourcing and building relationships with targets.
Behind the scenes of these major moves, Corporate Development is researching, studying, and analyzing markets, which empowers it to make strategic recommendations.
Source: Building Corporate Development - Certification Courses on M&A Science
Corporate Development Team Activities
Corporate Development teams are usually responsible for activities such as:
- Identifying and investigating potential target companies
- Developing relationships with said targets (which includes getting past the gate-keeper)
- Pipeline management
- Additional M&A related activities (negotiation, diligence, and integration)
- Securing financing
- Financial modeling and analysis
- Portfolio management
- Improving the customer experience
- Communicating strategic plans to company executives
Here is an example of where a strategic M&A transaction is visible among the spectrum of corporate development activities:
When Starbucks wanted to expand from coffee into tea, instead of starting from scratch, it acquired the upstart tea brand, Tazo, for $8m (in 2017, it sold out to Unilever for $384 million)
Why Do Companies Need Corporate Development Teams?
Corporate Development teams are becoming essential in today’s business climate.
With rapidly changing technology and markets, the strategies Corporate Development practitioners develop ensure companies can adapt to these changes and remain competitive in their markets or expand into new markets if necessary.
Furthermore, with more M&A activity flooding the business ecosystem, having a Corporate Development team sets up for success both acquirers and targets, increasing their odds at maximizing synergies and generating lasting growth.
Over the course of several years, DealRoom was approached by several clients about their corporate development needs.
These conversations ultimately led M&A Science to develop a set of corporate development courses that draw on the corp dev experience of industry professionals to enable our clients to improve their in-house expertise.
Corporate Development Strategic Transactions
Corporate development is essentially about developing and implementing the company’s strategy.
A major component of this is transactions - taking in everything from licensing and partnerships to investments and divestitures - enabling the company to rebalance its portfolio, and to better position itself for growth and/or reduce risks.
As a recent DealRoom's guide on spin offs discussed, divestitures can be just as crucial to unlocking growth as acquisitions.
Corporate development teams are usually central to companies’ transactions such as:
The larger the company (i.e. Fortune 500 companies), the more likely Corporate Development is using M&A for growth and spending a great deal of time deal-sourcing, developing relationships, and cultivating a pipeline.
Why are these businesses spending so much time and energy on mergers and acquisitions? M&A allows for growth in numerous ways (and somewhat faster growth), such as entering new markets, reducing competition, and acquiring talent and technology.
2. Long-term Partnerships
Engaging in long-term partnerships can be easier than engaging in M&A, while still providing some noteworthy benefits.
For instance, these partnerships can end (or at least ease) price wars, block competitors, and provide access to new products. Perhaps the benefit with the largest impact is that both companies can be exposed to new customer bases and markets.
The best, most profitable, and lasting, long term partnerships begin organically with a clear understanding of each company’s values and goals.
Some famous partnerships we currently are seeing include Nike and Apple and Casper and West Elm. In addition to the aforementioned benefits, these companies also have prospered from co-marketing strategies.
3. Divestitures and Carve-outs
Divestitures of specific assets can also allow for growth. Namely, divestitures and carve outs can raise capital for companies. Sometimes this capital will be used for M&A activities.
Related: A Guide to Planning Successful Divestitures by a Divestiture and M&A Advisor
4. Strategic Alliances
Alliances are seen as similar to partnerships. However, strategic alliances are agreements between two companies with similar goals.
There are multiple types of strategic alliances such as sales alliances and geographical alliances. Examples include Barnes and Noble and Starbucks, and the pairing of realty companies with specific banks and/or mortgage brokers.
The process of fully integrating the culture and operations of both companies after an M&A transaction.
The process of divesting an asset, unit, division, or company.
7. Buy outs
The process through which management of companies gain control through buying out the current owers’ shareholding.
8. Joint Ventures
New companies established by two or more companies, usually with the aim of achieving specific goals (i.e. entering anew market or new product development).
A joint venture where no new company is established. Can be less formal than a joint venture.
An arrangement where one company agrees to pay another for licensed usage of its products (tangible and intangible) and/or services.
The Right Fit for Corporate Development
Corporate development teams typically include at least a couple of people with investment banking experience.
These individuals will be tasked with ensuring that the core financial elements of each transaction are in order: i.e. ensuring that the company can raise the finances for a transaction, that the transaction is being valued properly, and that shareholder value is being created by the transaction.
That being said, the corporate development team is usually a crossover with the company’s strategy team, meaning there is room for individuals from non-banking backgrounds.
Furthermore, the more a company’s acquisition or divestment strategy requires industry expertise (for example, in the biosciences), the more likely it is that the team will be filled with industry knowledge that can bring value to the company’s transactions.
Team Structure of Corporate Development
Corporate Development teams spend a majority of their time working on deal sourcing, analysis, and execution, and while the structure of the Corporate Development team depends largely upon the business (size, market, and goals), there are a few consistencies seen across Corporate Development teams.
First, especially at larger companies, there is often a Corporate Development executive with a robust M&A background as well as credentials such as a CPA or MBA. Teams might also look for members with experience in investment banking and law.
In general Corporate Development groups contain:
- A VP or Head of Corporate Development
- A Director/Senior Director
- A Manager or Associate
- An Analyst
Because of the large and extremely important scope of Corporate Development teams, most individuals working in Corporate Development do not begin their careers there because they lack experience with running deals.
Overall, industry background is of the utmost importance for Corporate Development practitioners.
Corporate Development vs Business Development - What is the Difference?
While both corporate development and business development add value and are essential to companies, their definitions and activities differ.
We know Corporate Development is creating and acting on strategies to meet a company's overarching goals and objectives, via activities such as M&A, long-term partnerships, divestitures, and carve-outs, and creative transactions for optimizing shareholder value, that generally take a great deal of time (months, even years) to carry out.
Business Development focuses more on the market; bringing in customers, working with vendors, and marketing. Consequently, business development activities often include marketing and sales related tasks. Both genres of development clearly include networking and developing relationships and partnerships.
Stages of Corporate Development
During the development phase, identify and define your idea and begin fleshing it out; delve into researching the market you will potentially entering. Garnering financing for your idea is also an essential part of this stage.
Agility is essential during the start-up stage as you refine your product and/or services and business model. Establishing your customer base and disrupting your market will be two of the many challenges here.
Now you should be generating regular revenue and “surviving,” which means you will want to continue to fine tune your business model. This time with an eye for growth and expansion as you work to increase your customer base and revenue.
Consider here how entering new markets could be beneficial to growth and revenue generation. Keeping an eye to the future and generating more rapid growth is key during this stage.
When your company is a strong force in its market and bringing in steady revenue, you have reached maturity. Some might consider an exit strategy after some time in the maturity stage, or turn to investigating ways to disrupt the market and identify new development initiatives, thus beginning a new development cycle.
Essential Tools for Corporate Development Teams
Corporate Development Best Practices
Have experienced M&A practitioners on your Corporate Development Team
When it comes to Corporate Development there really is no substitute for experience; the wider the variety of experiences and areas of expertise on your team, the better.
Be organized and consistent (yet flexible) with your M&A practices and language
This means making sure all team members and executives are using the same language and tools. Additionally, pipeline management is consistent. Finally, basic foundational approaches (“playbooks”) are utilized, but teams tailor each deal to their specific needs/characteristics, remaining Agile.
Keep your pipeline up to date and “healthy"
Building off the above best practice, keeping a healthy pipeline and assuring it is always up to date is essential. You must move beyond the archaic Excel spreadsheet and look to smarter project management platforms that allow for safe and methodical sharing and updating of information.
Build and maintain relationships
Your Corporate Development leaders should be “people” persons. It is of the utmost importance that they can build and maintain genuine relationships with potential targets.
Keep data on past deals and learn from them
Based on past deal experiences, new deals should become more efficient, and strategies should continuously be honed.
“If you don't have it organized where everybody can see what everybody is working on, people are just talking past each other, they’re not on the same page. It’s a horrible trap to get caught in, not having that inner communication.” — Michael Palumbo
Quote from: The Corporate Development Podcast at M&AScience.com
As Corporate Development teams become more common, and tools are generated to help them with their strategies and deal management, it is easy to see more and more companies are relying on the creativity and skills of Corporate Development leaders to enhance and grow their businesses.
In fact, a study done by Deloitte notes that 62% of Corporate Development practitioners believe their role as a “source of innovation” has increased over the last two years.
This does not mean, however, that the jobs of Corporate Development teams are getting easier; rather with more M&A activity flooding the market, it becomes increasingly challenging for these teams to make themselves stand out to potential targets.
Consequently, it becomes essential for Corporate Development practitioners to cultivate genuine relationships and avoid the all too tempting comfort of putting their heads down and blindly following playbooks.
This is where Agile thinking and methodologies, as well as interpersonal skills (often referred to as “soft skills” - though they’re anything but) come into play.