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Executing acquisitions without a dedicated function is highly inefficient and results in failed deals. Companies should not purely rely on inbound opportunities, and need strategic teams dedicated to sourcing deals. This blog will discuss how to start up a corporate development function featuring Veena Ramaswamy, Head of Corporate Development at Lemonade.
"Getting a deal done is not always the best thing for the business" - Veena Ramaswamy
When to start building the Corporate Development function
According to Veena, there are three ways M&A can grow a company.
1. Accelerating - Helps achieve the current or future business goals or objectives, growth in existing products, add adjacent products, and speed to market.
2. Strengthening - Can add capabilities that enhance the value of the current or future product offerings, including anything from tech licenses, talent, or people.
3. Protecting - M&A can also safeguard against competitive threats or market movements.
As soon as leaders realize they want to leverage acquisitions as a valuable tool for growth, they must start formalizing and creating a corporate development function.
The most significant benefit of standing up a function is that it allows a company to be more proactive about opportunities rather than reactive, resulting in more valuable deals.
Another benefit is that the transactions will be executed more strategically. No one understands the business more than the internal people, who are motivated to grow the company rather than just “getting the deal done”.
Process of building the M&A function
1. Get to know the business well - Engage with the executive team, business leaders, and functional leaders to understand:
a. The vision
b. The product
c. Target customer
d. Go-to-market strategy
e. How do they see themselves achieving their growth targets
There are no wrong questions. Be curious enough to ask as many questions as possible to understand how the company works.
2. Establish the process - This is critical for folks without M&A experience. Create a single-page document that lays out the steps required to get a deal done. Keep the document high-level, as there should be no hard rules regarding the exact process because every deal differs.
a. Valuation
b. Letter of intent
c. Diligence
d. Alignment on pricing and negotiating
e. Various checkpoints with the board
f. Formal offer
Educate people on corporate development and its role in the company's growth. Share that through a town hall or lunch, so everyone knows the function, the process, and the criteria.
If the goal is to mature the function and its people, nothing beats experience. Just continue doing deals, and people will learn over time.
3. Become an information hub - Gather as much relevant industry information as possible. The information can be gathered through newsletters, reports, conferences, or one-on-one conversations with various stakeholders. Also, share information pertinent to the team.
4. Alignment with stakeholders - Everyone must understand that not every opportunity is a deal. Conversely, when a deal pushes through, everyone has to own the transaction. If the deal starts going off track, avoid pointing fingers.
Get alignment early and do it in a group setting. Let people hear others’ doubts and concerns, so everyone can respond or react to them.
Biggest lessons learned
Throughout years of experience, Veena has three important lessons learned that she would like to impart to everyone:
1. Nothing ever goes according to plan - Corporate development must be nimble and flexible. Understand the criteria and where to push or not push.
2. A deal is never done until it’s closed - Signing and announcement is only step one. Deals can always get delayed or take different paths.
3. Maintain perspectives at all times - The success of a deal does not make or break a business. M&A is just a tool and a part of the growth strategy.
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