NEW YORK, Jan. 15, 2013 /PRNewswire/ -- The recent U.S. economic environment is yielding excellent opportunities for buyers to find value in mergers and acquisitions (M&A). But transactions involve many risks, including over or underpricing a business, the challenges of effective and efficient integration and pressures to realize expected synergies. Studies suggest that as many as one-third of all deals fail to return the cost of capital.
To help companies bridge the gap between market value and intrinsic value, PwC expanded its service offerings to include Assessing Deal Value. This service provides an objective analysis of the impact on value associated with business drivers, market economics and industry trends.
Led by Aaron Gilcreast, a principal in PwC's Transaction Services practice, the service extends diligence of valuation issues in a deal. Successful deal completion requires a sharp focus on the relationship between risk and return, which ultimately translates into enhanced assessment of deal value.
"Aaron and his team have extensive experience analyzing and explaining the key value drivers in deals, as well as linking diligence findings to deal value," said John Glynn, a partner leading PwC's Valuation Services in the U.S. and globally. "Their insights can help reduce the acquirers' risk of overpaying for targets."
"Price versus value is the foundational equation in every transaction," added Gilcreast. "Buyers and sellers need to focus on the gap, if any, between price and value, because that gap may decide the ultimate winners and losers in a given transaction."
PwC recently released a report titled "Uncovering Blind Spots in Deal Valuations," which explores "valuation blind spots" – i.e., some of the factors that can lead companies to misprice acquisitions. For example, in a recent PwC survey, nearly 30 percent of finance executives and deal professionals said that stakeholder bias presented the greatest risk in pricing prior transactions. Other factors preventing companies from realizing expected value on acquisitions include a disproportionate focus on historical results instead of future prospects, valuation model errors, misaligned deal objectives, overlooked tax and accounting impacts and over-estimated value from potential synergies.
According to PwC, value diligence helps clients improve their valuation process by:
- Uncovering how misaligned interests caused by natural bias can impact deal value
- Identifying mathematical, design, and/or methodology errors in models
- Exploring upside and downside cash flow scenarios, including probabilities of each and consideration of complex options as necessary
- Improving the connectivity of key diligence findings to value
- Analyzing required returns based on the components of systematic risk
- Sensitizing value output to changes in key value drivers
"Uncertainty is a certainty in any deal, but risk associated with the unknown has been amplified in the current economic environment," said Gilcreast. "As the economy recovers and companies chart a smart course for growth, deal makers will be well served by investing time and effort in valuation on the front end of transactions to avoid surprises on the back end. While M&A activity represents tremendous potential for growth and transformation, that potential can be realized only through robust valuation diligence that effectively considers the relationship between price and intrinsic value."
PwC's Valuation Services practice brings together professionals with extensive valuation, technical accounting (US GAAP and IFRS), financial reporting, tax, deal structuring, analytical and industry expertise to offer an integrated valuation, accounting, and tax and business advisory model. Services include Project Portfolio Optimization, which helps clients value and prioritize their initiatives, including sustainability. For more information, visit us online at www.pwc.com/us/valuation.
PwC's Deals practitioners help corporate and private equity executives navigate transactions to maximize value and returns. In today's increasingly daunting economic and regulatory environment, experienced M&A specialists assist clients on a range of transactions from smaller and mid-sized deals to the most complex transactions, including domestic and cross-border acquisitions, divestitures and spin-offs, capital events such as IPOs and debt offerings, and bankruptcies and other business reorganizations. We help clients with strategic planning around their growth and investment agendas and advise on the business-wide risks and value drivers in their transactions for more empowered negotiations, decision making and execution. Clients can then expedite their deals, minimize their risks, capture and deliver value to their stakeholders, and quickly return to business as usual.
Our local and global deal strength is derived from over 1,400 deal professionals in 21 cities in the U.S. and over 9,800 deal professionals across a global network of firms in 75 countries. In addition, our network firm PwC Corporate Finance can provide investment banking services within the U.S.
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SOURCE PwC US