Internal Merger Gurus Grow More Popular
Sunday May 1, 11:11 am ET
By Julie MacIntosh
PHILADELPHIA (Reuters) - To many investors, a company without an acquisition strategy is a company without a future.
Enter the corporate development officer, an increasingly popular type of executive hired with one goal in mind: directing a company's merger and acquisition plans.
To address the market's hunger for growth through acquisitions, many companies that a few years ago would not have considered hiring their own corporate development officer now have such executives reporting directly to their top brass.
These executives aren't meant to replace the investment bankers that bring buyers and sellers together and help execute deals.
But in a recent Ernst & Young survey of 175 corporate development officers, 86 percent of them say they are a primary source of generating dealmaking opportunities for their companies.
Jeff Herbst, vice president of business development at graphics and digital media company Nvidia Corp. (NasdaqNM:NVDA - News), said companies are again looking to hire corporate strategy point-people. He said CDOs had been even more popular during the tech boom, when he had worked in development at Web portal AltaVista.
"You don't usually get hired into a job like this when it's quiet," Herbst said. "We're really busy -- we're pretty stretched right now, which is the way we like it."
BANKERS GETTING THE BOOT?
As more public and private money chases deals and makes price-inflating auctions more prevalent, an executive whose interests lie solely within a company can add an extra layer of scrutiny to each potential deal.
"An investment banker's mandate is to get a transaction done," said Kerrie MacPherson, Americas market leader for Ernst & Young's transaction advisory services group. "But the CDO role is part of a series of checks and balances to make sure you do the right deal and you do the deal right. Sometimes the very best corporate development officer recommendation is, 'Don't do it."'
That hardly means, though, that investment bankers are going to be out of a job.
"We don't see anything that suggests investment bankers would cease to be valuable," MacPherson said.
While an investment bank's relationship with a company might change once a CDO comes on board, the intermediary role banks play is still important.
"We have a pretty open communication with several sets of bankers," Nvidia's Herbst said. "We love when they bring us ideas and opportunities. There are definitely times when they can add value, and we use them judiciously."
Don McLellan, corporate vice president of mergers and acquisitions at cell phone maker Motorola Inc. (NYSE:MOT - News), said his team helps eliminate the distractions investment bankers could cause if they talked directly to the company's business units about deals.
"Investment bankers will look at a deal from a very episodic point of view, while we, in-house, look at it from a much longer-term point of view," McLellan said. "We filter through the opportunities and keep that distraction rate low."
HELD ACCOUNTABLE
Companies with corporate development gurus, whether they're hired from investment banks, law firms or internal business units, tend to have more success with their acquisitions, the Ernst & Young study showed.
Higher levels of M&A activity have spurred some of the resurgence in CDO-type roles, though increased government regulation has also served as an impetus, experts said.
The role of the in-house corporate development officer has taken on heightened importance because companies need to make sure that now, more than ever, their deals will deliver the value they promised to shareholders, Motorola's McLellan said.
And because investors are demanding proof that assets can be successfully integrated once they're purchased, corporate development personnel are focusing more and more on integration plans instead of just identifying and executing deals.
But the extent to which a CDO works to appease regulatory concerns varies with each company. Nvidia's Herbst said that even with his background as a lawyer, dealing with corporate governance issues has never been a focal part of his job.
"My primary job is to find opportunities, evaluate them, build consensus within the company and then execute," Herbst said. "We work to get deals done quickly and efficiently."
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