Corporate development during recessions

How is the corporate development function of company generally viewed during recessions? Do companies generally layoff a significant portion of the CD team if deals are halted or does the CD team pivot to assist in other special projects?

Comments (24)

Aug 20, 2019

Following, curious as well. My guess is that it's super firm dependent (whether you're at a consumer staples firm vs. something highly cyclical etc). My guess is that if you're in an expensive seat (VP+) at a relatively non-acquisitive cyclical firm during a recession, you may be tasked with handling some business lines outside of your wheelhouse (read: ushered out) if not just outright told that you should start looking.

Interested in hearing @Sil " "s take.

Aug 20, 2019

@awealthofBS, @LeveredBetaBoy

I am honestly not sure. I was laid off before when my firm missed earnings several quarters in a row and eliminated their entire M&A team, so I imagine most firms handle it similarly during a recession. If you think about it, corporate development teams tend to be a firm's most expensive finance function.

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Aug 21, 2019

Probably the most expensive per capita, but I can't think of a company where CD would be the most expensive finance function. I'm sure it exists, but CD is usually a small fraction of total finance headcount.

To answer OP's question, non-essential headcount are always at risk when businesses contract. For many businesses, CD is non-essential to the day-to-day functions of the business. For my company specifically, I've seen them reduce, but not eliminate the team.

twitter: @CorpFin_Guy

Aug 21, 2019

Largely agree. Naturally, the bigger the group the more likely you are to be laid off. Some fairly large firms only have a couple people in CD, so that may be relatively safe (of course during a big downturn or poor company performance, still a chance you can get let go as you're usually paid more than others in CD). But places with multiple people at each level can easily see some cuts when the economy or company performance goes the wrong direction, even for a few quarters as Sil mentioned - assuming you aren't busy divesting.

Aug 29, 2019

I've been at my Corp Dev role (@ Director level) for ~3 years so I have not seen a recession, however, we have not been acquisitive in the last 2.5 years as we worked through restructuring our business. In this time frame, my duties/projects were refocused on restructuring efforts and other financial analyses. At our Company, the FP&A function is not strong, so I've found myself guiding analyses that would typically fall into FP&A responsibility, in addition to other ad-hoc projects. When we enter a recession, I'd expect a similar re-allocation of my time from M&A and to other areas. (although we typically become quite acquisitive during recessions due to the availability of "cheaper" deals)

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Aug 20, 2019

will depend, some firms that will be doing well during recessions will bulk up on cheap assets, where as some firms struggling will cut costs - ie layoff the team.

Aug 21, 2019

Bet they would keep some to handle divestitures. Oilfield services has basically been in a recession for a few years, with WFT hit perhaps the hardest. WFT still has a decent M&A group, though it should just be called the divestitures group.

Aug 21, 2019

Potentially. I know thaf some firms neither divest not acquire so they just cut costs.

Aug 21, 2019

Interested as well. Seems to me to be very firm/industry dependent. Namely, how recession proof is your firm and how valued is your Corp Dev function within the firm?

Array

Aug 21, 2019

Corp. dev. at my company (energy producer/trader) pivoted over to helping us on the deal origination / structuring / trading side of the business last time everything slowed down. When we had more complicated deal structures involving assets they assisted with technical know-how, asset valuation, monetization strategy, etc. which isn't what we're the best at. It was actually kind of nice.

Edit: that said, the team did get trimmed a bit

Aug 21, 2019

My estimation is that it is very firm and industry dependent. I have thought about this from time to time given the economic warning signs about an upcoming recession.

I will echo other people's comments about the Corp Dev being one of the more expensive corporate teams, but given the heavy M&A activity for the firms I have worked for in Corp Dev, that may be the nature of doing business to acquire top talent. My guess is that Corp Dev for industries like Healthcare with essential life services should not see much of a reduction in their Corp Dev team while other industries like Consumer Retail may be more heavily impacted if the firm has to start reducing store locations and headcount.

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Aug 21, 2019

Question is does the CoprDev team run the analysis that they should be let go?

In all seriousness, I'm curious as well from someone that has been through a cycle.

Aug 21, 2019

For us (energy) we manage a divestment program. This includes business-unit and asset valuation reviews and managing sale processes. Typically this means hitting corporate targets on divestment proceeds.

Aug 21, 2019

I'd assume if management's appetite around M&A goes down, they would cut the whole team or trim down/pivot those people into different roles. Now whether or not Corp Dev people would want to move into more traditional finance (i.e. FP&A) would be the employees choice.

I think you are more at-risk if your Corp Dev team is just viewed as "deal people" (i.e. your only value add is doing M&A). At the end of the day each business has it's own strategy and if it no longer makes sense to keep former bankers on payroll, then Yes you will be laid off.

Aug 21, 2019

I work in Corp Dev for a company in a highly cyclical industry. It's a fairly small team (~5 people) and I don't think any of us would be let go. In fact, I think we would be looped in, or leading, any plans on cost/headcount reduction. We would also most likely be expected to pick up any slack in FP&A and forego some of our regular M&A responsibilities.

With all that being said, it's highly team dependent. Our manager does a very good job of getting us involved in projects outside the scope of M&A, so we've all had a chance to show our value beyond Corp Dev.

Aug 22, 2019

I think this is a good point. If you are on a Corporate Development team that encapsulates Corporate Strategy then I think you are less at risk - even in downturns there needs to be a company strategy.

I think of Corporate Development as a strategic function that includes M&A, strategy, integration etc. - so not just M&A.

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Aug 23, 2019

Qualitative factors will be how much organic work that Corp. Dev team does, as well as the company's philosophy around M&A. Quantitatively, the firm's balance sheet will play a large role.

Putting all of these together, if you work in a corp dev team that does a lot of organic growth work in addition to transactions, have a board that pursues opportunistic M&A, and has a balance sheet that can close deals when shit hits the fan, your seat is fine.

If, on the other hand, your group only does transaction work, the company only buys stuff when everyone else is (and has no risk-taking appetite during uncertainty whatsoever), and is two quarters away from a Chapter 11 filing, things aren't looking good for you.

Those are the two poles of security in corporate development. It's up to you to figure out where you find yourself in that continuum.

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Sep 4, 2019

For those that had experiences doing divestment during your company's downtime, were your team trimmed/eliminated after the divestment?

Cheers
Teng Fei

Sep 6, 2019
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