Fascinating times in the mergers and acquisitions market place with the number and size of the transactions unprecedented since 2007…a remarkable turnaround. What is most interesting is that for the first time in a while, the objective external observer can compare and contrast two very different types of buyers:
- The corporate European and American buyer whose motivation to do deals has been driven by the following factors:
- An unprecedented (at least since 2007) access to cheap capital
- Reasonable asset prices – although this is changing rapidly as the market in certain sectors heats up
- An implicit acceptance that innovation is easier to buy than to do – which, with an internal pipeline that does not bear much scrutiny, makes acquisition(s) the obvious and perhaps only solution
- The ambitions of a senior management team who have learnt much from PE in terms of transformation
- An integration approach still defined by ‘winners’ and ‘losers’ where corporate allegiance leads to continued career path or exit
- The corporate Asian (specifically Chinese, Japanese and Indian) buyer whose motivation to acquire is driven by the following:
- Yield based strategy where domestic returns are limited
- Focus on knowledge based acquisitions where the ‘know-how’ can be applied across a broader portfolio
- Geographically driven diversification, which has at its heart, three different motives: Resources, brand value and people
- Long term time frame, in part because of the different perspective on ROI from external investors
- State sponsored with an ambitious CEO who has global aspirations. This deals with any capital requirement but also the personal commitment to make a deal happen
- Non-interventionist approach to integration where, as a result of various external factors, the requirement for governance, conformity to policy / procedures / standards is of a different order to that required in the above example
- A further factor here is the increasingly protectionist attitude of many western governments in their definition of protected industries, coupled with employment laws which are very different from those practiced in Asia. This almost pre-defines the above integration approach
- Non-intervention also aligns strongly with a non-confrontational, extended family, respect and honour based culture
From where I stand, the odds appear stacked in favour of the latter group.
Many of you will say, with some validity, that this is an unfair comparison…that the factors driving investment return timeframes, the lack of corporate innovation and geography are not ‘influence able’ by the current set of CEOs and their advisers. That is a fair complaint…but fairness does not appear to have much of an impact on success or failure…we all have to live with the environment or endeavour to change it!
So how should we measure success? We can probably list any number of financial measures which might offer a decent measure of success. For the first group, improving the perception of M&A still remains the overarching challenge.
For the second group, you might consider some other measures as well…include successful culture integration, updated value chain, improved business improvement metrics, brand enhancement, staff engagement, etc Perhaps the biggest measure of success will be a tacit acceptance that having an Asian parent is not problematic and enables rather than prevents the realisation of strategy and opportunity. For most European employees / leaders, this is still regarded as a hurdle.
- The latest corporate card trick! Going from manufacturing to services in one simple step…
- What’s the big deal with hostile transactions?
Categories: C suite leadership, Change management, cost of capital, Mergers & acquisitions, private equity
Tags: Business models and digital transformation, China, culture, Europe, family owned enterprise, post acquisition integration, regulation, USA
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