You can think of Corporate Development as a company's in-house Investment Banking team.
It is a unique career path combining deal-making activities from mergers and acquisitions and working for a single company and better work-life balance. You are the Investment Bank for one company.
It is a popular exit strategy for Investment Bankers who still want to use their deal-making skill sets with more manageable working hours and better work-life balance. You will still earn six figures, so your bonus is significantly less. On the upside, you will work closer to 40 hours in Corp Dev.
Corporate development teams usually execute Mergers and Acquisitions strategies, divestitures and carve-outs, and strategic alliances and joint ventures.
What is Corporate Development?
You can think of Corporate Development as a company’s in-house Investment Banking team. This happens when a company has so many M&A activities that it makes sense to build your internal team instead of always relying on external Investment Bankers.
Corporate development teams usually execute Mergers and Acquisitions strategies, divestitures and carve-outs, strategic alliances, and joint ventures.
In other words, you are trying to grow by buying other companies and competitors. Instead of building your business units, you buy a fully finished product as a cash flow-generating company to strengthen your competitive advantage.
Companies that do M&A only occasionally will not have a separate corporate development team. In those cases, the CEO and the CFO will lead the deal team and have a first look at a business.
What do Corporate Development professionals do daily?
Here are the typical tasks of Corporate Development teams:
Sourcing and screening of potential acquisition targets
Valuation and financial modeling
Perform due diligence and contract negotiation in an acquisition process
Prepare executive decisions for the management board together with all stakeholders
Manage the sale process when divesting a non-core business unit
Manage the financing process to raise additional debt or equity
Coordinate and negotiate strategic partnerships or joint ventures
The tasks managed by corporate development teams are similar to those in Investment Banking. Once the deal is completed, that task ends. Post-merger integration is part of a different team and belongs more to the business unit itself.
The big difference, however, is that it is always focused on one company and its overall match to the corporate strategy. Corporate development involves a lot more stakeholder management. You can't just buy or sell companies.
The company you buy must have a long-term strategic rationale and be integrated with an existing business unit. So, you need to manage many different stakeholders within the corporate environment to successfully execute a deal that makes sense in the long run. The financial modeling is an important part. It involves creating revenue, expense, and cash flow projections to determine the value of the combined entity.
Why is Corporate Development needed?
Corporate development or inorganic growth is a tool to drive a company's competitive advantage and, eventually, shareholder value. So, the decision to grow with acquisitions must be aligned with the corporate strategy.
Regarding corporate strategy, the primary decision is "buy or build". Rapidly changing business environments force larger companies to evolve and adapt their business model to move the company forward.
This can be done by internal restructuring or innovation (build), which takes longer because you have to start from scratch and build everything yourself. Or you can buy the new and upcoming competitor by leveraging your financial firepower. Buying a competitor is a means to revenue growth in an efficient manner.
By buying the company outright, you get everything: access to the target audience, innovations in customer retention and how they serve customers. You can also gain access to new markets that your competitor is serving.
What are the types of Corporate Development transactions?
Mergers and Acquisitions
Mergers and acquisitions (M&A) are the most common transaction form and provide opportunities for growth by outright buying target companies. With the acquisition, the larger corporation immediately consolidates market share and gains access to new markets and technology.
Large companies don't have the time to build and test a business model from scratch. So, they would instead buy a proven and successful business as part of their corporate development activities.
A successful M&A process requires a Corp Dev team with experience in valuation, risk management, negotiation and financial modeling.
Corp Dev team typically goes through the following process when acquiring a company:
Research and approach potential target companies
Valuation and financial modeling of a potential synergy case to justify the investment
Prepare documentation for the approval of the management board
Due diligence and negotiation final
Divestitures and Carve-outs
Divestitures and carve-outs refer to the disposal of assets or business units that no longer align with the company's strategic plans and are considered non-core.
These transactions are as crucial for facilitating growth as buying new targets, as they enable larger companies to rebalance their portfolios and refocus on their core business to remain competitive.
The process is similar to an actual sell-side M&A process in Investment Banking. You think of who you can sell the asset to and start a market approach. Selected bidders can conduct due diligence and negotiate the final legal documentation.
Often, the corporation will hire an Investment Bank to execute the process while the Corp Dev team coordinates all external and internal stakeholders.
Establish strategic partnerships
Strategic partnerships are contractual cooperations that do not involve a share deal. No shares are being sold. Forming strategic alliances enables companies to strike a deal without the complexity associated with a fully-fledged merger or acquisition.
These collaborations can take various forms, such as a 50/50 joint venture, licensing, or distribution agreements.
These strategic alliances offer companies the opportunity to:
Reduce costs due to operational improvements
Access new markets for more rapid growth
Navigate the competitive landscape more effectively
Corporate Development vs. Business Development
Business development is less focused on finance and M&A transactions. Business development teams mainly focus on B2B enterprise sales. They are trying to sell the product rather than the entire company. Business development is more the driver of an organic growth strategy, where the company tries to grow by itself without buying other competitors.
Business development can be very operative in selling the company's products and services, but it can also be more strategic. Here, we are talking about bigger ticket-size deals and strategic partnerships.
Daily activities focus on identifying and creating new business opportunities, generating leads and sales activities.
Despite both business development and corporate development being growth drivers for the company, their approaches and responsibilities stand differently.
Corporate Development vs. Corporate Strategy
Corporate strategy outlines a company's long-term objectives and aspirations, setting the direction for its future growth and success. In contrast, a corporate development strategy implements its strategy through mergers and acquisitions, collaborations, and divestitures, ensuring the company has the necessary resources and capabilities to achieve its strategic goals.
Aligning corporate strategy with corporate development is fundamental to driving shareholder value and propelling the company's success. By aligning these two aspects, businesses can ensure their strategic direction is effectively executed through well-planned and managed corporate development transactions.
Recruiting process and backgrounds
The recruiting process for corporate development roles often includes the following steps:
Gaining relevant experience in Investment Banking or Management Consulting
Build a network of headhunters or apply online for interesting positions
Navigating multiple interview rounds, which may include phone interviews, case studies, and in-person interviews
These steps are typically necessary to secure a corporate development role.
During the interview process, candidates may meet with various stakeholders, including the hiring manager, Human Resources, and other team members. Next to your technical skills, you must demonstrate in-depth knowledge about the industry and the company you are applying for.
Demonstrating a solid understanding of corporate development concepts, such as strategic synergies, can significantly improve your chances. The corporate development team can use something other than another execution-focused Investment Banker.
You need to be able to think strategically within the corporate context. Ideally, you are buying companies to integrate them into the corporate environment. In other words, you buy to consolidate and never sell.
Team structure
The typical career path within a corporate development team is different from traditional Investment Banking, where, with time, you rise through the ranks.
Here is a typical team structure:
In Corporate Development, everyone is an experienced professional who can drive a transaction alone. So, you don't have a lot of junior employees compared to Investment Banking
You have one Head of Corporate Development
There is a low employee turnover rate
This means that you will not rise through the ranks and eventually become a "Corporate Development Director". There is just one "head of". So, you are not going to make Partner. Everyone is a Vice President in disguise, as everyone can autonomously execute their transactions.
Instead, you stay in your comfy role with work-life balance. You will execute a transaction here and there and go home a lot earlier than your Investment Banking colleagues.
Career paths
Stay in Corporate Development
This is probably the most common option. People go into Corp Dev to stay there. You still get to execute deals and do financial modeling. You get to use all the skills you learned in Investment Banking, just with more work-life balance.
Private Equity
Private equity could be an option if there is an industry match. Say you work at a media and tech conglomerate, and the private equity fund is also focused on media and tech. However, remember that you must work with a corporation known for solid deal flow. One deal per year might not be good enough for a private equity exit. To be more direct, private equity is not one of the common exits.
Corporate finance
You might get interested in corporate finance after doing a couple of deals and due diligence processes for your large corporation. This means financial planning and analysis (FP&A) or CFO's office, where you look at the corporation from a financial perspective. This role is more internal finance and less transaction-driven.
Corporate strategy
Strategic fit and synergies are a significant part of finding a suitable deal in Corp Dev. You may want to move in the direction of corporate strategy. This is where you look at the overall corporate strategy of the different units, and it all works together.
Lead a business unit or venture
You may want to do something more hands-on after working on so much finance. You have drafted the investment thesis and driven the transaction. Why not become the CEO or CFO of the particular unit? You understand the ins and outs of that specific target company.
Frequently asked questions
What is the main goal of Corporate Development?
You can think of Corporate Development as a company's in-house Investment Banking team. The main goal is to drive business growth by acquisition. This is how large companies navigate the competitive landscape and maintain their competitive advantage. They buy the upcoming competitor who has access to new markets.
What is an example of Corporate Development transaction?
What is the role of a Corporate Development executive?
Does Corp Dev pay well?
