Key takeaways from the Corporate Dealmakers Forum

At the Corporate Dealmakers Forum in New York, Zscaler executives and experts from across the mergers and acquisitions landscape shared valuable perspectives on subjects including the challenges and opportunities in integrating businesses after an acquisition and the potential applications for AI in dealmaking. The transaction market shows signs of recovery across select industries, with broader growth expected after the election and with interest rate reductions.

Here are five key takeaways:

1. Alignment is essential for post-integration success  

Aligning strategy and expectations between the acquiring and acquired companies is crucial for a successful integration, which most dealmakers would assume was a given, but the fact that, according to most studies, between 70% and 90% of acquisitions fail to meet expectations suggests more could be done to align the key stakeholders in the two businesses coming together.

Panelist Ted Sullivan, senior director for integration and separation at Virtas Partners, saw a lack of continuity between those people doing the deal and those taking it forward, resulting in lost information. “The strategy doesn’t necessarily translate from the corporate folks to the business unit that is receiving the [acquired] business. 

Getting full stakeholder buy-in on the strategic thesis and operational roadmap from the outset is critical to avoiding costly failures down the line. Clients should establish trackable key performance indicators so that front-end diligence matches the longer-term goals.

2. The cybersecurity imperative

Cybersecurity and data privacy risks have become increasingly important considerations in before, during and after M&A transactions. Post announcement periods can see a spike in cyber attacks; for example, a recent Wall Street Journal article reported how during Kenvue’s separation from parent company Johnson & Johnson, attacks against staff increased by 200-300%.

According to Stephen Singh, global vice president of M&A/Divestiture and Private Equity at Zscaler, early stage due diligence processes often overlook IT risks including cloud workloads, IoT/OT implementations, software supply chain, and IT outsourcing arrangements. “Every stage of an M&A transaction is subject to cyber threats and attacks which, if not identified and remediated, could harm both the buyer and seller,” he said.

Singh said Zscaler can help companies drive value creation and reduce risk. “Two companies can now connect securely and increase the opportunity for business growth in days, rather than weeks or months, with no IT footprint required” he said. “Further, adoption of  zero trust policies helps protect the brand and reputation during a transaction, by minimizing the attack surface, stop ransomware, and reduce the risk of data loss, while providing real-time observability.” Zscaler solution reduces one time and recurring transaction costs through due diligence, analyzing IT estates for cyber risk, hardware, software, and asset replication.

3. It all starts with a plan

Detailed planning and comprehensive roadmaps help streamline the merging of two distinct organizations, cultures, and processes, while ensuring key areas such as operations, finance, human resources, and technology are thoroughly evaluated and aligned.

Equally important is the use of planning for the identification of potential risks, challenges, and conflicts, and for enabling proactive strategies to mitigate them. Additionally, it promotes communication and engagement with stakeholders, fostering a sense of ownership and buy-in from employees.

Panelist Simone Bonnet, senior director at WTW, highlighted the need for clarity around insurance coverage to manage risk. “A huge part of the due diligence exercise has to be asking ‘What kind of insurance does the target have’ and what kind of coverage is it going to have post-closing, for things that happen pre-closing?”

Companies conducting the most successful integrations learn from previous missteps and incorporate those lessons into plans. With the experience accumulated through numerous acquisitions, the potential for serious mistakes around integration is significantly diminished.  

4. The role of AI in M&A

In a recent research report, Bain & Company claimed GenAI is currently used in deal processes 16% of the time, but this is expected to increase to 80% over the next three years as early adopters reap efficiency benefits. 

According to Zscaler’s Chief AI Officer, Claudionor Coelho, GenAI definitely has a role to play in M&A work, and though its use is limited for now, that will change soon. “GenAI is very good at tasks such as writing and analyzing text, generating text and translation, but I would not trust it completely with numbers yet,” he said. 

Coehlo was more positive about the contribution GenAI will make in the future. He said GenAI has the potential to contribute to all areas of dealmaking, including setting out business strategy, identifying targets, and accelerating innovation. He said GenAI will become an “M&A co-pilot.” 

The area where GenAI can perhaps make the greatest contribution in the near-term is due diligence. Coelho said: “Generative AI is going to get better and better. It will help you do the financial due diligence on the company; once you have the mathematical models, you can analyze the text to see if the business case supports the financial model.”  

5. The human factor

Integrations are not just about systems and processes; people-related challenges are regularly cited as major hurdles in post-merger integrations. Effective integration strategies prioritize the impact on people and seek to quickly align employment terms and benefits. 

Alexandros Aldous, general counsel, corporate secretary and chief government relations officer at Chef’s Warehouse, said that in the wake of an acquisition, you often have a large number of employees excited about future growth opportunities, but fearful of practices they are used to being changed. 

Mr. Aldous said you have to incentivize those individuals that are only expected to stay for a short amount of time in a thoughtful way and integrate those that are going to be staying for a longer period of time with the company’s longer-term objectives.

To learn more about Zscaler’s offerings around M&A/divestitures and information technology outsourcing, please visit the website or contact Stephen Singh.