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| Outsourcing
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M&A
Today
Volume 6 No. 1
January 1997
by Diane C. Harris
Corporate
Development’s main mission is to execute on the external growth
strategies of a company. Therefore, it is not surprising that the most
visible portion of a Corporate Development Officer’s (CDO) job is
completed deals — the number, size and strategic significance of those
deals.
External Corporate Development
This
external portion of the CDO’s responsibility consists of deal sourcing,
analysis and valuation, negotiating and deal structuring,
contractualization, financing and due diligence. The deal process often is
prefaced by strategic planning and brought to fruition through post-deal
integration. The CDO may be assisted in portions of the job by
consultants, investment bankers, brokers, intermediaries, financiers,
lawyers, accountants, and many others who help with a particular portion
of the implementation. In some cases, however, the expense of a corporate
development department may be seen by boards of directors and CEO’s as a
substitute for paying transaction and consulting fees. That sometimes
makes it difficult for the CDO to seek outside deal advice, especially if
asking
for help would trigger a large transaction fee. Perception of the need for
such caution may also be partly responsible for the current lack of using
consulting and outsourcing for the internal corporate development
functions as well.
Internal Corporate Development
What
is not so visible to those outside the corporate development function is
the internal activity that needs to take place for the CDO to execute a
successful corporate growth program. In many cases, the internal aspects
of corporate development are at least as demanding as the external, but
traditionally little outside help has been available to the CDO in
developing the department infrastructure, and putting in place the initial
process for growth. Outside the company, much consultation is targeted to
completing a transaction, rather than helping the CDO to effectively
implement and manage a corporate development department. Scant help may
also be available inside the company, because the CDO is expected to be
the in-house expert.
As a
corporate development officer for over a decade, I found that my main
sources of knowledge and help in the internal aspects of corporate
development were in networking with my peers (especially through the
Association for Corporate Growth), and in benchmarking the corporate
development function at non-competing companies. A few years ago I mailed
an 18-page survey to the CDO’s of all the Fortune 300 companies and had
a 20% response rate. The subjects included corporate development
organization, training, budgets and succession, as well as a variety of
deal-related parameters, resources and future directions.
I
asked the CDO his main method for keeping up with professional
development. The answers were reading (85%), investment bankers (72%) and
seminars (57%). Then I asked what was the main method for training
corporate development staff, and the answer was overwhelmingly
“apprenticeship under a qualified negotiator” (88%). The CDO sees the
value of coaching and counseling with an experienced professional in
developing his own staff, but such a resource has not been widely
available to the CDO, except through networking. Even then, it is hard to
ask the questions that the world thinks the CDO should know. I call these
“closet questions.” Sometimes we would just like to hear another
person’s opinion, suggestions, ideas or challenges to validate our own
thinking. Only the most seasoned CDO can be an expert on most areas of
corporate development practice, but the survey showed the average tenure
for Fortune 300 CDO’s is a short 3.9 years.
“The goal is to
make the Corporate
Development Officer even more effective.”
So the
CDO may need other resources, both to execute externally on all or part of
the deal, and internally in the infrastructure, resources, organization
and policy of the corporate development department. Consulting and
outsourcing are two ways to assist the CDO in the internal aspects of the
corporate development function. Consulting applies to coaching, counseling
and mentoring to get the corporate development function fully and
effectively implemented. Outsourcing applies to taking on some of the work
of the CDO or his staff. The line may blur between consulting and
outsourcing, and the same person or organization may even play both roles.
The goal is to make the CDO even more effective in his or her job, to
supplement resources, not to replace the CDO or the CDO’s staff.
Corporate
Development Internal Responsibilities
What
constitutes the internal sphere of corporate development? The following is
just a sample list. Almost any CDO could double this list by adding his
own particular responsibilities:
 | Cultivate a growth mindset
throughout the company. |
| Be the key company resource for
growth matters. |
| Develop and/or oversee strategic
plans, and create the linkages to external growth strategy
implementation. |
| Decide whether or not to
establish an in-house corporate development function. |
| Recruit and train staff. |
| Decide and implement an
appropriate degree of centralization and/or decentralization. |
| Decide and implement the right
balance of corporate oversight and “customer service.” |
| Establish technical capability,
such as valuation, information resources and negotiation training. |
| Develop the capabilities of the
internal deal team. |
| Develop and cultivate a network
for deal flow. |
| Develop and disseminate the
criteria and policy for finding deals. |
| Set up administrative systems
for deal flow, confidentiality agreements, fee agreements, fee policy
and the resolution process. |
| Enact internal approval
policies, internal procedures, guidelines. |
| Establish rewards, incentives
and succession planning. |
| Conduct TQM, benchmarking,
budgeting, planning and meet all corporate staff department
responsibilities. |
In
addition to this list of internal corporate development activities, of
course, is all the external activity of dealmaking. There were times even
on the external dealmaking side that, as a CDO, I would have liked someone
to read a contract and advise me how it might be improved, or brainstorm a
negotiating gap to find a better win / win for each party, or look over my
shoulder at a variation of valuation methodology and challenge me a bit.
But the CDO does not have many people to whom to ask the “closet
questions.”
Example of Consulting and Outsourcing
for Corporate Development
Perhaps
the best way to illustrate how consulting and outsourcing can be used by
the CDO is to look at a selection of the kinds of assignments undertaken
or in discussion since we established our corporate development consulting
and outsourcing practice:
| A CEO who has decided to recruit
a CDO asked us to participate with him in the last round of
interviews. His words to me were “I’m not sure I’ll recognize a
dealmaker when I see one.” |
| A CDO who is an excellent
dealmaker was recently asked by a new board member for a copy of his
mergers and acquisitions policy. He does not have one. That is not a
surprise, since our survey showed that half the Fortune 300 does not
have a formal M&A policy. We are discussing drafting one for that
CDO. |
| Another CEO has had a long time
board member from a Wall Street investment bank. He wants to use that
bank for his M&A work, but has asked us about negotiating the fee
agreement for him with that bank to preserve more of an arms-length
relationship. |
| We are beginning to use our list
of 3500 deal sources around the world for clients, in order to put
their acquisition criteria in front of many more people, and to
participate in the screening of deal flow to relieve their
administrative load. |
| We helped one company president
to establish a corporate development online data base and search
capability. |
| In one case we are reviewing a
company’s strategic plan with respect to new products to advise
which areas might best lend themselves to a new ventures growth
strategy. |
| We are holding in-house
corporate growth seminars, often being able to transmit some messages
that the CDO might find difficult to say directly to his peers. |
| We are currently in discussions
with a company about designing a program for their new corporate
development staff to get up to speed quickly to become "qualified
negotiators. |
| For one company that was
being sold, there were very few potential buyers and the company did
not want to take the risk of losing the first or second due diligence
visitor by being poorly prepared. We conducted a Phantom Due
DiligenceSM
dry run to ensure the team was ready and confident. |
“Outsourcing allows an
organization to play to its strengths.”
Other
areas where a CEO or CDO might use consulting and outsourcing for the
external corporate development function are in parts of the deal such as
business contract review, valuation oversight, negotiating strategies and
due diligence participation. Outsourcing is not a new idea for business.
Many company needs are outsourced. But outsourcing is not a concept that
has been extensively applied to corporate development. Traditionally,
outsourcing has not been one of the tools the CDO utilizes in order to
concentrate where he can make his biggest impact, usually in deal
completion.
CDO’s
are committed to the success of their companies, but that does not mean
they have to do all the work themselves. It is not possible for most
companies to staff their corporate development areas to handle the peak
work loads. In today’s mood of downsizing, many companies are not even
staffing to the average level of support needed. With the inherently small
size of so many corporate development staffs, it is often the internal
part of the job that gets short shrift. Outsourcing allows an organization
to play to its strengths. It helps to deal with those peak loads that a
corporate development department cannot staff to meet, rather than miss
the opportunity. I expect we will see more outsourcing of parts of the
corporate development function in the future, and more consulting to the
CDO to help him succeed in his responsibilities.
Cautions in Outsourcing and Consulting
in Corporate Development
Although
there are many reasons to consider outsourcing and/or consulting, there
are some cautions about using such outside resources. Principally, these
cautions involve the handling of sensitive “people relationships,”
decision making and leveraging rather than substituting for the CDO’s
strength.
| Outsourcing should not come
between the CDO and his or her key relationships such as the CEO, COO
or operating unit heads, the board of directors, other peer corporate
staff or even the deal champion (the person driving a deal to happen). |
| Consultants cannot create a
corporate culture or a growth mindset. Outsourcing can’t make the
growth mindset happen, but seminars and training can make a
difference. |
| Outsourcing should not be used
to manage the corporate development staff, but consultants can coach
and mentor them. |
| Consultants should not make a
decision to hire or fire, but can provide interview feedback. |
| Consultants should not try to
influence up or down the organization but can develop data or give
information for the CDO to influence the organization. |
| A third party should not be in
the way of the CDO’s visibility, but should enhance it. |
| Consulting is not a substitute
for staying leading edge, keeping up one’s individual skills, but
consultants can stimulate learning. |
| Third parties should not be the
face of the company to the outside world. |
Outsourcing and Working with
Consultants
Working
with consultants and outsource providers in corporate development is not
so very much different from working with those providers in other areas of
the corporation. One should try to get firm deliverables, such as how much
will it cost and how long will it take? It is best to work with people
with a training and coaching mindset, who will show you how and not keep
their skills in a black box. Then choose a consultant who has skills you
want to learn and build up the relationship as you would one inside your
own company.
Articulate
what you want to learn and what you want to accomplish and learn to
express concern early, give feedback frequently. Review results openly. Do
not give up ownership of the corporate development function, no matter how
competent the consultant or outsource provider may be. If you feel as if
you are losing control, you probably are. Outsourcing should give the CDO
more control, not less. Do not give the plum assignments to the outsource
providers or you will lose the opportunity for personal growth and
visibility, but do let them contribute to making you even more effective
at those assignments. In this way, you will get the maximum from
outsourcing and consultants, leveraging your own strengths in the process. |
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