Annual Corporate Development Report - Lion Equity

Annual Corporate Development Report

Survey Results

March 2021

I would like to thank the over 250 corporate M&A professionals who have generously offered

their time and insights to our 1st Annual Corporate Development Survey. The survey,

conducted throughout January and February 2021, polled corporate M&A professionals from

some of the largest and most acquisitive corporations across the globe. The collected data

measures recent M&A activity and current challenges and trends surrounding corporate deal

origination, acquisitions, and divestitures. Additionally, the report illustrates overall job

sentiment amongst Corporate M&A professionals.

M&A activity has rebounded from the hiatus in the early innings of the COVID-19 pandemic.

Furthermore, 72% of respondents expect deal volumes to increase in 2021, and 63% of

companies anticipate an increased appetite for M&A in 2021. While it appears deal activity

will be robust in 2021, corporate dealmakers face significant obstacles to deal execution,

including high valuations, uncertain market conditions and unprecedented challenges

executing and integrating deals in a virtual environment.

Encouragingly, we are seeing a migration toward normal working conditions (12% have

already returned to the office full-time, 22% are partially in office, 20% expect to return

within the next 6 months and another 28% to return within 12 months). Additionally, 91%

expect to travel for business within the next 12 months.

Despite M&A roadblocks and fluid working environments, the Corporate Development job

sentiment remains relatively high. Many respondents indicate high levels of satisfaction

regarding personal fulfillment and compensation. Notably, 80% plan to remain in this

profession long term. Many respondents believe this profession strikes the right balance of

intellectual stimulation, impact and professional and personal fulfillment.

I hope you find the survey results and related best practices interesting and valuable. Please

feel free to connect for further discussion.

Lion Equity Partners 2

INTRODUCTION

Annual Corporate Development Report – Survey Results | 2021

Aaron M. Polack

Lion Equity Partners, Head of Business Development

Best Regards,

ABOUT LION EQUITY PARTNERS:

Lion Equity is a Denver-based private equity firm founded with the core purpose of helping

companies meet strategic divestiture objectives. The Partners of Lion Equity have significant

experience acquiring corporate divestitures and the overall M&A process.

WHY DO CORPORATIONS DIVEST NON-CORE DIVISIONS TO LION EQUITY:

TO DISCUSS A CORPORATE CARVE-OUT OPPORTUNITY, PLEASE CONTACT:

3

260 N. Josephine St. | Suite 220 | Denver, CO 80206 | www.lionequity.com

Aaron Polack, Head of Business Developmentw 303.847.4428 | c 720.675.9180

[email protected] | LinkedIn

John Ciancio, Business Development Associatew 720.420.4375 | c 847.899.2315

[email protected] | LinkedIn

CORPORATE CARVE-OUT SOLUTIONS


✓ Proven track record of executing complex carve-outs from sellers, including Bed Bath

& Beyond, Siemens, Pitney Bowes, Sodexo, The Washington Post and others;

✓ Demonstrated ability to execute time-sensitive carve-outs requiring speed and

certainty of closure;

✓ Committed to flexible structures that meet seller’s divestiture objectives;

✓ Dedicated to seamless transition through a unique understanding of the specific

issues involved both during due diligence and post-closing working with Seller,

employees, customers and suppliers.

https://www.linkedin.com/in/aaron-polack-a24208a/

https://www.linkedin.com/in/johnciancio/


5 Key Findings6 Survey Respondent Profile

KEY FINDINGS AND RESPONDENT PROFILE

8 New Deals in 20209 Deal Volume Expectations10 Pandemic Affect on Deal Origination11 Origination Tools12 Origination Best Practices

ORIGINATION

13 Deal Roadblock Heatmap14 2021 M&A Trends15 QoE and R&W Insurance

ACQUISITIONS

20 Pandemic Impact on the Corporate Development Profession21 Time & Money22 Job Sentiment23 The Why

CORPORATE DEVELOPMENT PROFESSION

16 2020 Divestitures and Expectations17 Divestiture Triggers and Use of Proceeds18 Divestiture Sales Process19 Divestiture Best Practices

DIVESTITURES


INDUSTRY DATA AND TRENDS

- Available to survey participants

Note: used throughout report to denote Key Findings

KEY FINDINGS AND RESPONDENT PROFILE


93%

0%

91%

57%

#1

72%

63%

85%

41%

72%

80%

Lion Equity Partners

Of corporate respondents reviewed less than 200 deals in 2020 (73% reviewed fewer than 50 deals)

No respondents expect their Corporate Development team to downsize in 2021

Plan to travel for business within the next 12 months (11% of total respondents are already travelling for business)

Use Microsoft Excel to track deal sourcing and pipeline data (12% do not capture any deal sourcing or pipeline data)

Seller valuation expectations is the #1 most challenging roadblock to closing deals in the current environment

Expect deal volumes to significantly or moderately increase in 2021

Of companies anticipate a significant or moderate increase in their appetite for M&A in 2021

Expect to pursue smaller, tuck-in acquisitions in 2021

Closed or attempted a divestiture transaction in 2020

Receive compensation/incentives beyond salary and bonus (such as stock, RSUs, warrants etc.)

View the Corporate Development profession as a long-term career choice

5

United States

81%

Canada

5%

APAC

2%

Europe

12%

Note: Survey data is collected from 257 respondents

2%

2%

2%

2%

5%

6%

7%

7%

10%

11%

13%

33%

Other

Aerospace / Defense

Finance / Insurance

Transportation / Logistics

Construction / Infrastructure

Energy / Power

Consumer / Retail / Restaurants

Business / Professional Services

Manufacturing

Industrials

Healthcare / Life Sciences / Pharma

Technology / Media / Telecom

COMPANY INDUSTRY:

COMPANY HEADQUARTERS:


RESPONDENT PROFILE


6

COMPANY REVENUES:

PROFESSIONAL ROLE / TITLE:

AVERAGE ANNUAL DEALS CLOSED:

COMPANY OWNERSHIP:

SIZE OF CORPORATE DEVELOPMENT TEAM:

ACQUISITIONS CLOSED IN 2020:

34%

10%

34%

13%10%

$0-500M $500M – 1B $1-5B $5-20B Over $20B

51%

24% 23%

2%

Publicly listed Private Private equity Other

64%

22%

3% 4% 5% 2%

Sr.CorpDev

Mid.CorpDev

Jr.CorpDev

CEO CFO Other

26%

46%

16%

4%8%

0-1 2-4 5-7 8-10 Over 10

3%

75%

14%6%

2%

0 1-5 6-10 11-20 Over 20

26% 25%

37%

7%

1%4%

0 1 2-4 5-7 8-10 Over 10

Note: Survey data is collected from 257 respondents

RESPONDENT PROFILE (CONT’D)Annual Corporate Development Report – Survey Results | 2021


HOW MANY ACQUISITIONS DID YOUR COMPANY REVIEW IN 2020:

38%

35%

20%

5%

1% 0.4% 0% 1%

0-20 21-50 51-200 201-400 401-600 601-800 801-1,000 Over 1,000

WHERE ARE YOU SOURCING ACQUISITION OPPORTUNITIES:

Note : Data presented as a weighted average for each deal source

93% reviewed fewer than 200 deals and 73% reviewed fewer than 50 deals

# deals

2%

3%

14%

17%

27%

37%Investment bankers / Intermediaries

Outbound efforts by CorpDev Team

Internal sales team or business unit management

Inbound direct from acquisition target

Service providers –accounting, legal etc.

Other sources

ORIGINATION – NEW DEALS IN 2020Annual Corporate Development Report – Survey Results | 2021


9

1%1%

18%

39%

41%Within the next 6 months

Within the next year

Within the next 2 years

Greater than 2 years

Will never return to pre-COVID levels

WHEN DO YOU EXPECT M&A TO ACTIVITY TO RETURN TO PRE-COVID LEVELS (OVERALL

MARKET):

It already has surpassed! “

We’ve never seen more deals [in the last 6 months]. Announced M&A deals are down; however, the number of M&A deals in market has never been higher.

“

It’s higher than pre-COVID level for our industry.“

Activity levels never changed.“

Interestingly, but not surprisingly, we had a larger pipeline during COVID.“

ORIGINATION – DEAL VOLUME EXPECTATIONS


9Lion Equity Partners

DESCRIBE HOW COVID-19 AFFECTED YOUR DEAL ORIGINATION AND APPROACH FOR THE NEXT

12 MONTHS?

Pre-COVID our process involved multiple F2F visits with potential targets to ensure that we had a good culture fit. We're now looking to duplicate those interactions via Zoom with somewhat mixed results.

Engaging with prospects completely virtually has increased efficiency relative to travel time.

Quality deals are being priced up so need to be more aggressive early.

The pandemic has had little impact on deal origination. The primary change has been getting comfortable completing diligence virtually.

M&A activity hit a wall right as the pandemic hit; however, after 6 weeks, there was a surge in deal activity as small companies & startups were looking for additional investment or outright sales in order to weather the COVID storm. The deal flow has remained steady since then.

Instituted a lot of patience over the past 12 months with the understanding that some interesting assets may come for sale before the end of CY21.

More cautious approach. Our risk appetite has lowered until we see full recovery trajectory in our end markets.

It has been much more difficult to assess true valuation of target acquisitions. Over the next 12 months, business trends will begin to smooth which will improve the valuation process.

Inability to meet in person has probably increased reliance on brokered deals via banks.

We have paused all acquisition, focused on cash preservation and accelerated divestiture efforts for non-core assets.

“

“

“

“

“

“

“

“

“

“

ORIGINATION – PANDEMIC AFFECT ON DEAL ORIGINATION



1%

1%

1%

1%

2%

2%

2%

4%

5%

12%

12%

57%

Copper

Dynamo

Pipedrive

Sharepoint

DealCloud

Midaxo

Proprietary/Internal

Google smartsheet

Other

Salesforce

0.5%

1%

1%

3%

3%

3%

6%

7%

8%

12%

39%

43%

64%

Grata

Gartner

SourceScrub

Bankers/Consultants

FactSet

Crunchbase

Other

Internal/network intelligence

Public information

CB Insights

S&P CapitalIQ

PitchBook

Industry Publications

WHAT TOOL DO YOU USE TO MANAGE YOUR CONTACTS AND DEAL SOURCING/PIPELINE DATA:

WHAT RESOURCES ARE YOU USING TO IDENTIFY AND/OR GATHER INFORMATION ABOUT TARGET

ACQUISITIONS (MULTIPLE SELECTIONS ALLOWED):

ORIGINATION – TOOLS



Excel

We do not formally track

PLEASE SHARE ANY BEST PRACTICES WITH YOUR ORIGINATION PROCESS:

We realize that we need to develop our outbound process more in order to be proactive rather than reactive.

Best practice is having a specific team that sources deals internally and knows how to speak the speak when they get the right person on the phone.

I am a strong believer that strategy is key to origination success. If you don't have a clear view of what you are and what you want to become, you aren't able to communicate that vision to potential targets. This will result in a lot of wasted effort.

Emphasis on prioritizing market segments, product capabilities aligned with growth strategies, and deal scoring have accelerated quality deal flow.

Tight connection with R&D and GTM teams to keep a pulse on what our customers & prospects are asking for, plus where and why churn is occurring.

BU execs know their industry best and maintain contact and good relations with management of potential target companies so that when they're ready to sell, we get the first call.

We're in this state where we need to formulate an outbound strategy. Most of our deals have come from inbound interest, which limits the pool of targets we can choose from among other disadvantages.

Invest in relationships - be willing to put in the time.

Consistently revisiting dead deal list, if they checked the boxes before, likely they do again when traded in future.

“

“

“

“

“

“

““

“

Organize it like a sales process, keep getting meetings and expand your network. “Do an ecosystem map and then canvassing of all prospective companies aligned with ecosystem. Align buy recommendations with clear strategic opportunities. “

ORIGINATION – BEST PRACTICES



1 Ranking is most to least severe, using weighted average for each roadblock

ACQUISITIONS – DEAL ROADBLOCK HEATMAP



4%

3%

7%

2%

7%

3%

5%

3%

10%

6%

11%

28%

5%

9%

17%

14%

20%

14%

20%

23%

23%

28%

28%

46%

14%

15%

15%

27%

24%

38%

25%

34%

28%

34%

26%

20%

21%

40%

33%

36%

25%

34%

35%

35%

25%

22%

28%

5%

56%

33%

28%

19%

24%

12%

15%

5%

14%

10%

7%

1%

DEAL ROADBLOCKS – RANK THE SEVERITY OF EACH CHALLENGE YOUR COMPANY FACES TO

CLOSING DEALS (RANK 1-5, 5 IS MOST CHALLENGING) :

Seller valuation expectations

Uncertain market conditions

Integrating deals in virtual environment

Origination – not finding the right deals

Seller deal terms in purchase agreement

Diligence on COVID-19 financial impact

Cultural fit

Pace we move through deal process

Negotiating deals in virtual environment

Uncertainty of internal M&A strategy

Shareholder/board approval

Access to capital

Ranking1:

1

2

3

4

5

6

7

8

9

10

11

12

5 4 3 2 1

Smaller, tuck-in acquisitions

Significant Increase

Moderate Increase

Remain Unchanged

Moderate Decrease

Significant Decrease

Acceleration of digital transformation, consistent VC investment, massive amounts of dry powder, and appetite for risk will continue to provide a strong environment for deal-making in 2021.

5%

3%

6%

23%

20%

16%

28%

32%

40%

52%

65%

58%

52%

29%

22%

7%

10%

9%

7%

5%

7%

1%

1%

1%

1%

IDENTIFYING M&A TRENDS FOR 2021:

IN 2021, YOUR COMPANY WILL PURSUE (MULTIPLE SELECTIONS ALLOWED):

“

2%

Expectations for deal volumes

Company appetite for M&A

Expectations for valuation multiples

Expectations for average transaction timeline

Company interest in international M&A

ACQUISITIONS – 2021 M&A TRENDS



39%

49%

12%

Yes, all of our deals Yes, some of our deals No

18%

57%

25%

Yes, all of our deals Yes, some of our deals No

DO YOU SEEK A QUALITY OF EARNINGS REPORT WHEN MAKING AN ACQUISITION:

ARE YOU USING REPS & WARRANTY INSURANCE WITH YOUR ACQUISITIONS:

We engage outside advisors for QofE reports for most of our deals, except for small domestic deals or for early-stage companies with clean financials

“

Yes, for larger complex deals, but not for smaller transactions“

We are using R&W insurance more and more frequently, especially in deals with PE sellers

“

Typically, only in a competitive process where the seller requires a R&W policy“

ACQUISITIONS – QOE AND R&W INSURANCE



51%

16%

14%

13%

6%We do not expect to make anydivestitures

Currently in process with adivestiture

We have non-core assets, butunsure if/when we will sell

Within the next 12 months

Within the next 24 months

33%

8%

59%

Yes Attempted, but did not close No

DID YOUR COMPANY COMPLETE ANY DIVESTITURES IN 2020 :

WHEN DO YOU EXPECT TO INITIATE YOUR NEXT DIVESTITURE:

41% closed or attempted a divestiture in 2020

DIVESTITURES – 2020 DEALS AND EXPECTATIONS



1%

5%

6%

19%

21%

27%

40%

42%

44%

9%

11%

16%

35%

39%

40%

61%

WHAT TRIGGERS CAUSE YOU TO DIVEST (RECENT AND/OR PLANNED DIVESTITURES, MULTIPLE

SELECTIONS ALLOWED):

WHAT ARE YOU DOING WITH THE PROCEEDS FROM DIVESTITURES (RECENT AND/OR PLANNED

DIVESTITURES, MULTIPLE SELECTIONS ALLOWED):

Streamlining business model

Weak competitive position of business unit in the market

Inferior margin profile of the business unit compared to parent company core business

Inbound interest from potential buyer

Other

New executive leadership

Financial distress of parent company

Geopolitical / market uncertainty

Uncertainty resulting from COVID-19 pandemic

Re-invest in core business

De-leverage balance sheet

Use to make an acquisition

Invest in new technology/products/services

Returns/distributions to shareholders or investors

Other

Held as liquidity to sustain distress/uncertainty

DIVESTITURES – TRIGGERS AND USE OF PROCEEDS



WHAT BEST DESCRIBES YOUR TYPICAL SALE PROCESS FOR A DIVESTITURE (RECENT AND/OR

PLANNED DIVESTITURE):

WHAT BEST DESCRIBES YOUR PREFERRED BUYER FOR DIVESTITURES (RECENT AND/OR PLANNED

DIVESTITURES):

All strategic acquirers

Limited strategic acquirers (non-

competitors)

Private Equity / Family Office

Open to all buyers

21% 20% 1% 58%

Broad auction run by an

investment bank or advisor

Limited buyer group run by an investment bank

or advisor

Broad auction run by internal Corporate

Development team (no advisor)

Limited buyer group run by

internal Corporate Development

team (no advisor)

13% 37% 4% 46%

DIVESTITURES – SALES PROCESS



PLEASE SHARE ANY BEST PRACTICES FOR PORTFOLIO REVIEWS AND EXECUTING DIVESTITURES:

Pre-planning is the key, especially in a carve-out situation. This includes external third party VDD reports (QofE, Phase I environmental, QofO, etc.) and detailed separation analyses. It is never as easy and straight-forward as it might appear.

Be proactive and do not wait until business has been neglected!

Have a clear understanding of the desired outcome (process, buyer type, timeframe) before engaging the management team, but they are critical to getting the deal closed. Keep the team working on the divestiture as small as possible for as long as possible.

I think a best practice is to have a regular cadence for identifying non-core parts of the portfolio and consider them for divestiture.

Divestiture is considered when we feel the ecosystem should have the service but we don't see margin performance or strategic alignment.

We should do a formal review. We don't.

Get your house in order before going to market.

Include divestiture strategy (as well as acquisition strategy) in all long-range plans.

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DIVESTITURES – BEST PRACTICES



WHEN DO YOU EXPECT TO TRAVEL AGAIN FOR BUSINESS:

WHAT BEST DESCRIBES YOUR CORPORATE DEVELOPMENT TEAM (SELECT ALL THAT APPLY):

WHAT BEST DESCRIBES YOUR WORKING ENVIRONMENT:

14%

Team layoffs due to COVID-19

17%

Team grew in 2020

63%

Unchanged from 2020-2021

0%

Expect to downsize in 2021

9%

Expect to grow/hire in 2021

11%

I’m already travelling for

business

36%

Within 6 months

44%

Within 12 months

9%

Greater than 12 months

0%

I’m never travelling for business again

CORPORATE DEVELOPMENT PROFESSION – PANDEMIC IMPACT



Yes No

IS ANY PORTION OF YOUR COMPENSATION

DIRECTLY TIED TO METRICS ON YOUR

ACQUISITIONS AFTER CLOSE:

Yes No

DO YOU RECEIVE COMPENSATION/INCENTIVES

BEYOND SALARY AND BONUS (SUCH AS STOCK, RSUS, WARRANTS ETC):

WHAT IS YOUR TIME ALLOCATION ON THE TASKS BELOW1:

21%YES

72%YES

3%

7%

11%

19%

21%

39%

Investor Relations

Miscellaneous

Integration

Corporate Strategy

Origination

Deal Execution

CORPORATE DEVELOPMENT PROFESSION – TIME AND MONEY



1 Data presented as weighted average of time allocated per task

80%

20%

I plan to be in this professionlong-term

This is a short-term steppingstone to a different career path

7%

6%

17%

9%

18%

29%

38%

35%

44%

46%

33%

42%

23%

38%

24%

23%

11%

20%

8%

11%

8%

3%

5%

1%

1%

RANK YOUR LEVEL OF SATISFACTION FOR EACH ASPECT OF YOUR JOB

(RANK 1-5, 5 IS EXTREMELY SATISFIED) :

HOW DO YOU VIEW YOUR CAREER IN CORPORATE DEVELOPMENT:

Ranking1:

1

2

3

4

5

Compensation

Your company’s ability to execute M&A

Work load

Internal advancement opportunities

Personal growth / fulfillment

CORPORATE DEVELOPMENT PROFESSION – JOB SENTIMENT



5 4 3 2 1

1 Ranking is most to least satisfied, using weighted average for each aspect of job

WHY DID YOU CHOOSE THE CORPORATE DEVELOPMENT PROFESSION:

I like the concept of contributing to the growth of the organization and seeing that over time. In addition, although deals follow a similar process, each one is unique, which keeps things interesting.

Best combination of intellectual stimulation, work-life balance, and opportunity to make an impact.

Breadth of disciplines that can be applied to the profession - and hence personal development.

It's a unique position in the market. Close enough to the financial community to understand PE sponsor motivations, but also close enough the business to understand what's going on in the business.

Corp Dev is a great balance of mixing strategy and operations with financial goals. I was fortunate to find myself in a fragmented industry and partnering with very active buyers who view value inorganic growth as a means to achieve size quickly.

I started straight out of school and every project teaches me new things , gives me an opportunity to make an impact on clients and stakeholder, and lets me work with some of the smartest and most creative people in the world.

I love the complexity and variety.

Temporary path to gain operating experience while building an M&A track record. Stepping stone to corporate C-Level position or re-entry into PE.

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“

“

““

“

Was a sell-side advisor on Wallstreet for 10+ years and wanted more work life balance as my wife and I started a family.“

CORPORATE DEVELOPMENT PROFESSION – THE WHY



INDUSTRY DATA AND TRENDS



The Industry Data and Trends section of the report is available to survey participants. If you would like to participate in next year’s survey to receive the full report, please email Aaron Polack at [email protected]. Thank you.

mailto:[email protected]

Documents

Annual Corporate Development Report - Lion Equity