- ICIS.com, 4 July 2014
Maximising value in a deal requires some up-front analysis from both the buyer and seller perspective. What does it take to improve the deal making process?
- The Hartford, 21 January 2014
Khalid Khan and members of the The Hartford discuss how the company was able to drive significant value by streamlining its business portfolio.
Shedding light on the best ways to gain long-term growth.
A playbook that makes IT integration faster, better, and future-proof can ensure M&A success.
Evaluation metrics may look as if they tell the story but can be misleading.
It is widely recognized that a significant percentage of merger and acquisition (M&A) transactions fail to deliver value to shareholders. What goes wrong? How is it that acquisitions on average seem to create negligible returns? It can be tempting to blame poor merger integration for the meager returns, and certainly the execution of an integration can have a major impact on whether or not a transaction is regarded as successful. However, it may also be useful to consider if the deal was worth doing in the first place. Maybe some transactions should never have happened.
A.T. Kearney joined forces with the United Kingdom's Investor Relations Society to understand exactly which metrics and analyses get the most emphasis in evaluating proposed M&A transactions, and in this paper we discuss our findings. The research introduced a surprising insight: The impact on earnings per share (EPS) is by far the most emphasized metric used to evaluate proposed M&A transactions between public companies.
With this in mind, we look at two common and related myths surrounding EPS and demonstrate why these are at best unhelpful and at worst potentially misleading.Close
Curves are magnificent things. Think of the Jaguar E-Type or the Sydney Opera House. Mergers have curves, too—synergy curves.
For mergers, there is a window of opportunity for capturing the most benefits. A synergy curve defines this window and, ultimately, the success or failure of a merger. The result of months of preparation, planning, and implementation, the curve shows the accumulation of synergies over time. In successful mergers synergy curves are defined in the early stages and used as a driving force for the integration. A merger with a sense of urgency is far more likely to reach its full potential and by plotting a synergy curve during the planning of the merger senior executives can see the speed at which synergies could be delivered and track the planned accumulation of synergies over time. Plotting a curve also helps clarify the deal's strategic rationale, fundamental to maximizing synergy delivery. As the deal progresses through announcement and toward close, the curve's accuracy can be refined as more data is made available. A final curve takes shape as the synergies are tested through the development and sign-off, and once completed, can be used throughout the integration to benchmark, plan, and track the synergy delivery rate. In this paper, we bring together our experience and data from many mergers to describe the types of synergy curves for various integration strategies, and highlight the typical time frames for delivering synergies at an overall level and at the level of individual functional work streams. Used correctly, the synergy curve is the fundamental tool for successful synergy delivery and, to the CEO, the cornerstone of a successful merger.Close
The next five years will be crucial for the global chemicals industry. Which companies will emerge successful?
Measured against the early part of the century, the restructuring and debt buildup that occurred in the chemicals industry from 2006 to 2008 was extraordinary. The industry conducted deals worth more than $330 billion over that period, with the majority of deals valued at more than $5 billion. By contrast, almost two-thirds of the deals made in 2012 were worth less than $1 billion, none were worth more than $5 billion, and the industry’s deals as a whole were worth only $49 billion, the lowest level since 2003.
One result of the debt buildup will arrive soon: a wave of repayments that will come due between 2013 and 2016. At the same time deal activity is expected to increase, thanks to a resurgent U.S. industry seeking project financing for up to 10 new world-scale cracker and derivative plants. Any new deals taking place now are occurring within the context of refinancing the debt from that transaction peak.
To gain an understanding of the debt situation in the global chemicals industry, we analyzed more than 200 companies, both public and private, spanning different industry sectors in all regions.We created two scenarios for the chemicals industry to understand its possible development going forward. Under the first scenario, feedstock availability is already equivalent to the generation of eight new world-scale ethane crackers, but the scale of investment could be much larger if companies exploit liquefied petroleum gas and condensate as well as ethane. Our second scenario, in which the United States maximizes output, shows another 15 million tons per year of feedstock in addition to the ethane story that is already well understood.
Understanding these conditions, this paper answers some of the big questions facing the industry.Close
Interview with the authors of the new book, Asian Mergers & Acquisitions: Riding the Wave.
M&A between developed and emerging nations increased over the past two years, but developed economies still initiate most deals.
For years, mergers and acquisitions (M&A) between developed and emerging countries were initiated almost exclusively by companies in developed nations. While these deals still dominate, emerging markets have been on the rise in recent years. Several emerging-market countries—including China, India, Malaysia, Russia, the United Arab Emirates, and South Africa—are acquiring majority stakes in companies in developed economies at astounding rates. In 2011, of the 2,585 majority acquisitions between developed and emerging countries, 20 percent were initiated by companies in emerging countries. The total number of transactions in which companies from emerging countries acquired developed-country companies has been increasing since 2002 at an average rate of 17 percent per year.
In 2011, however, this growth stagnated when the economic uncertainty in Europe and the United States made acquisitions in those regions less attractive. While the rate of acquisition of companies in established countries by emerging countries remained flat at -2 percent, players in developed countries stepped up their acquisition activity in emerging markets by 20 percent; companies from established countries seem to increasingly pursue targets in developing countries not only as a means to capture cost synergies or access to growing markets but also as a means to counter competition from upcoming competitors.
Furthermore, A.T. Kearney's latest study of global mergers and acquisitions finds that transactions between developed and emerging countries increased from 5 to 9 percent of global M&A activity in just 9 years. Since 2009 the number of those deals has increased by 50 percent..
This rate of growth far exceeds the rate observed for majority acquisitions within developed or emerging countries (an average annual rate of just 4 percent between 2002 and 2011). While still not large in absolute terms, it indicates how rapidly emerging markets are catching up in M&A activity.
This paper discusses the study findings, analyzes motives and trends, and lays out a three-pronged strategy for developed-country players to retain a competitive edge in a whole new world of M&A.Close
Capturing the advantages of carve-out transactions requires looking beyond the financials to understand the challenges associated with the transition.
Carve-out transactions—the divestiture or sale of a division or business unit—have to clear a higher hurdle for success than typical mergers and acquisitions because they are more complex. Yet, carve-outs are worth the extra effort. Carve-outs can lead to lower premiums and higher gains for buyers, and for sellers they increase the likelihood of successfully closing the deal. Capturing these advantages, however, requires looking beyond the financials to understand the challenges associated with the transition.
Even in uncertain times, mergers and acquisitions (M&A) can be a source of value. In particular, carve-out deals, when strategically aligned, can unlock value for sellers and provide buyers with a platform for growth. As demonstrated by ING (online banking), Sara Lee (tea and coffee), Infineon (wireline communications), Dow (styrene manufacturing), and Caterpillar (third-party logistics), carve-outs are not limited to a single sector.
Carve-outs are attractive for a number of reasons. For buyers, they promise greater returns on investment, while eliminating the need to acquire non-strategic assets and business lines in order to obtain the desired assets. Because carve-outs are typically the domain of strategic buyers, there is usually less competition with financial buyers. For sellers, carve-outs are a way to manage activities more effectively.
The asymmetry that exists between the buyer and seller is the reason carve-outs work so well. Their differing needs and motives dovetail nicely, and both get exactly what they want. Strategic fit and value potential are greater for the buyer, while sellers can use the transaction to monetize underperforming assets—focusing resources more strategically on areas that generate higher returns (see figure 1). Although dealing with strategic buyers may limit the seller's ability to generate a competitive bid, it narrows the field to a set of viable buyers, which increases the probability of a successful deal.Close
Uncertainty in the healthcare industry is leading to more M&A. This collection of case studies shows what pharmaceutical firms can do to prepare.
The dominant theme across today’s healthcare industry is uncertainty—in terms of sales, regulatory pressures, pricing, and costs. Against this backdrop, more pharmaceutical and biotech companies are turning to mergers and acquisitions as a way to bolster growth and their pipelines. This collection of case studies highlights A.T. Kearney’s M&A work in the healthcare industry.Close
Real estate firms in the Middle East and North Africa are pursuing M&A and emerging stronger than ever.
Statistics bear out the severe decline in M&A deals. The value of deals globally fell from $3.7 trillion in 2007 to $2.3 trillion in 2008, a staggering 38 percent decline. Statistics for the first half of 2009 show a 35 percent decline to $1.14 trillion.
Our view is that bleak economic scenarios are opportunities for strong companies to bolster their standing in their respective industries and orchestrate "game changing" initiatives, prime among them are mergers and acquisitions. Such companies seek out opportunities to consolidate their industries and gain market share, acquire new technologies and know-how, strengthen competitive advantage, and capitalize on an improving economy. Mergers and acquisitions are currently the ideal mode for such opportunities. It's a buyer's market, and companies that act now are likely to emerge as winners when the upswing arrives. Now is as good a time as any for deal making.
A few companies have made aggressive moves: IBM announced its intention to acquire SPSS, and Sprint Nextel announced that it will acquire Virgin Mobile. Kraft made a bold takeover bid for Cadbury, offering more than $16 billion for the British confectionery maker. Disney announced a $4 billion takeover of Marvel Entertainment and Baker Hughes agreed to acquire BJ Services for $5.5 billion to create an oilfield giant. Among the largest of the recent deals are the $68 billion Pfizer-Wyeth merger and Oracle's $7.4 billion bid for Sun Microsystems. We expect more of these large deals as companies with solid balance sheets discover opportunities in the form of undervalued assets.Close
IT plays a vital role in creating a smooth transition for merging organizations. Often, it can make or break post-merger prospects.
Amid signs of an economic recovery—though tentative and fitful—more companies are once again testing the M&A waters. The year kicked off with a bang as Kraft Foods acquired Cadbury, Tyco purchased Brink's Home Security, and United and Continental Airlines agreed to merge and create the world's largest carrier. But scrutiny of these deals is higher than ever, as board members, stock holders and industry analysts want to see speedy returns from a merger or acquisition and are keeping a close eye on the integration process. The focus is increasingly on IT. As the margin for error shrinks, the role of IT departments in integrating merged companies is taking more of the spotlight.
In the best mergers, IT brings short-and long-term benefits that cannot be ignored, by enabling business synergies, providing business continuity and creating cost savings for the new organization. IT's role in post-merger integration not only brings real results—it is often the difference between a successful merger and one that never meets expectations.Close