What is deal execution?
Execution is the process of carrying out a deal in a business process. The concept is closely related to how deals are brought into existence and completed, which is also known as “partnering”. Businesses often use execution processes as part of their sales process with various levels of access to information.
Deal execution is broken down by Fintalent’s Deal Execution Consultants into stages including:
- Partnering or signing the deal agreement
- Preparations of products or services for delivery or implementation
- Delivery and implementation of products or services without intervention through the duration specified by the contract
- Monitoring the performance and completion on behalf to the contracting party for possible interventions that could improve performance.
In simple terms, execution is the process of achieving a deal by putting in place the required elements for implementation of the agreement. Deal deals have time frames and completion dates and once these are met, the deal is complete.
Since capital markets trading has become more internationalized, execution has evolved into a more formal area. It involves agreements between counterparties to trade securities that tie their financial position. The staking of capital takes place with no physical delivery of securities. In this way, “execution” means not only making electronic trades but also placing trades into account management platforms and closing them out using trade reporting systems (TRS).
More recently, execution has become an area of increasing interest to both large and small businesses. Executions can have a significant impact on the target business. Companies may need to finance or invest in other companies overseas. In such cases, they will need an advisory partner to help them find the best global market opportunities available. A company that executes foreign direct investment into new ventures may take a controlling interest in the venture. The company might also trade securities based upon the venture’s developments over time; for example, it might be interested in buying equity in a start-up company that is about to go public or listing its shares on a stock exchange for the first time.
There are several sub-areas within execution where different activities occur. These are typically:
- Transaction Advisory Services
- Execution Consultants
- Price/Liquidity Specialists.
Execution can be a positive force for change, generating value for stakeholders. However, execution can also be a drawback for companies and shareholders if it is not carried out correctly or if external forces such as the internet or industry consolidation take place that make it difficult to execute properly. Without the correct execution mechanisms in place, companies may find themselves unable to react quickly enough to changing market conditions. For example, recent changes in capital markets mean that business owners must find new ways of raising capital (or simply selling their businesses) because they cannot do so using traditional methods. Overcoming the hurdles in execution can be difficult, but is nonetheless essential for a company’s survival.
When a business exchanges its own shares for equity in another company, it is known as “reverse execution”.
The ultimate source of competition between buyers and sellers stems from the fact that every price for an asset or service has to be reached by either voluntary exchange or coercion. The volume of transactions executed in capital markets represents an important part of any market’s functioning and serves as a key indicator for possible changes. This also has consequences on the volume of capital market transactions which may affect how prices are reached and the overall portfolio liquidity of the market itself. The number of executed transactions and the volume traded is not only an indicator for market activity but also for the amount of risk in a given market.
Transaction execution is an organizational structure that reflects the hierarchical level at which various aspects of a transaction’s life cycle are managed. Transaction execution can be divided into front office and back office. The front office is responsible for planning, underwriting, marketing, and sales; it provides strategic direction, sets prices and risk limits, initiates transactions, and ensures profitability by measuring results against established objectives.
The back office handles the funding, implementation and ongoing management of a transaction. The back office prepares documents and monitors status. In particular, the back office keeps track of cash requirements and issues confirmations as they become due. Additionally, the back office is responsible for monitoring transaction status to determine when central banks are required to report liquidity positions on medium- or long-term transactions (i.e., transactions that can be held for longer than one year).
Portfolio managers must take into account how deals — the set of securities that will form a company’s portfolio — are executed for their portfolio to be successful. If execution takes place properly, then it increases liquidity by reducing the cost of buying or selling positions in a portfolio. Liquidity is of great importance, as it affects the rate at which portfolio managers can buy or sell at any given time. Achieving this goal requires an understanding of how investors trade securities in order to identify how best to execute a deal.
Deal Execution in M&A Transactions
The process for executing an M&A transaction is typically more protracted than the process for negotiation. This is because there are typically two or more parties involved in negotiating an M&A transaction, which means that all of those parties must agree on the terms and execute them before the deal can close. On top of that, executing an M&A transaction involves lawyers and bankers, who also require time to process and approve everything before it’s finalized.
Here are three things you can do to make sure your deal executes smoothly
- Define your deal goals and objectives as early as possible. This will help ensure that you execute your transaction on time, in the way that’s most beneficial for your company, and in the best way possible from a legal and financial perspective. For example, if you’re acquiring another company with different business practices, it’s important to define what goals you want underwriting or due diligence to accomplish at each step of the process. Certain steps might be more challenging than others; for example, but only in certain transactions does every side agree on financing terms or how an acquisition is structured.
- Always seek the most up-to-date information possible. When you’re preparing for a deal, it’s important to make sure that you’re on top of all the latest information that’s relevant to your situation. Some of this will come from your employees, who should be regularly updating their knowledge of the target company and its key personnel, borrowing from the “birds of a feather flock together” principle that everyone knows about in school. For example, an employee might find out that an individual whose decision-making authority will have a significant impact on your company’s strategy is leaving for another job after your deal closes. You’ll want to know about this before you conduct due diligence on him or her. Other pertinent information about your deal will come from your lawyers, bankers and other advisers. For example, if you’re in talks to acquire a company that produces paper products and you’ve been told that paper is having trouble competing with plastic, you’ll want to get more information on that so that you can decide how to compensate for it in your deal structure.
- Communicate effectively and often with the parties involved. Communication is vital in any M & A transaction, since it makes sure all parties are on the same page throughout the deal process. This means you’ll need to be able to transmit information effectively and interpret what others say as well. If you can, you should get together with parties on both sides of the deal face-to-face to discuss issues and move forward. If that’s not possible, you should use telephone calls and other means to keep communication lines open. In any case, be sure to focus on the big picture throughout the deal process and make sure you understand what’s going on.
These basic tips will help ensure that your M & A transaction executes smoothly and successfully from start to finish. If there are problems, they can usually be resolved quickly, because they’re rooted in communication difficulties or lack of knowledge or information.
Keep in mind, though, that sometimes things just won’t work out. You might still want to pursue the deal even if it’s not working out in some aspect. If your key goals or objectives change, or if the parties involved decide they don’t want to go through with the deal, you’ll need to come up with a new strategy. Whenever this happens, you should keep calm and negotiate from there—probably on a smaller scale—to achieve your ultimate goal of acquiring a company and putting the acquisition behind you for good.
Whatever happens, it’s important to stay focused on your goals and objectives and keep your eye on the big picture. Once you’ve decided that you want to buy a company, everything else should fall into place
