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Mergers & Acquisition – ReminderPerformance of big companies from all fields analyzed in-depth
Mergers & Acquisition – Possible development opportunities
Mergers & Acquisition – Possible development opportunities
Mergers & Acquisition – Possible development opportunities
Mergers & Acquisition – How are the companies growing
Source:Hoovers, Company reports, Analyst reports, McKinsey analysis
18 Utilitycompanies
18 Telecomcompanies
18 HighTech com-panies
Performance of big companies from all fields analyzed in-depth
Explanatory power for differences in company growth
percent
39
Out-executionof market growth
Market growth
23
38
Inorganic activity
Transactions are core to growth strategies
Mergers & Acquisition – How are companies growing
Source:Hoovers, Company reports, Analyst reports, McKinsey analysis
• Mergers are a tool used by companies for the purpose of expanding their operations and increasing their profit. • A successful acquisition, regardless of industry, must either
• enable growth• decrease cost• reduce capital required
• Like all aspects of business, it has the potential to add value as well as to destroy it • M&A is inherent in business, and to say that it is either good or bad would be an incorrect generalization
Mergers & Acquisition – What is aboutA merger/acquisition is a combination of two companies into one larger company
• Investment in new growth platforms - 90% of highest performing companies use acquisition to build out platforms (e.g. GE, Intel, IBM, J&J)
• Access to new markets (mature or new)
• Increase revenue/Increase Market Share - the company will be absorbing a major competitor and thus increase its power
• Roll-ups to provide access to larger customer base
• Business repositioning (GE in medical equipment)
• Maintain leadership during industry convergence
• Leveraging channels and technology
• Taxes - buy a loss maker to use the target's tax write-offs
• Cross selling - a bank buying a stock broker
• Synergy - better use of complementary resources
Mergers & Acquisition – Why they make itReasons vary by level of development of the market and the company
• As an acquirer you need to believe that you can drive growth of the acquired asset higher than it would have been able to do on its own• Growth synergies can be realized either
• by driving the assets of the acquired company harder • by driving the assets of the acquiring company to new heights
Mergers & Acquisition – What’s behindGrowth should be the stronger mid- to longer term driver of M&A
45%-50%
30%-40%Successful M&A
Failed/ neutral M&A
Source:McKinsey analysis
15%-20%
Mergers & Acquisition – Why they Succeed and FailOnly small part of deals are healthy and value creating
45%-50%
30%-40%Successful M&A
Failed/ neutral M&A
Bad deal• Weak strategic fit• Unrealistic
synergies• Price too high
Source:McKinsey analysis
Good deal poorly implemented• Poor integration
management • Loss of key staff• Customer losses• Cultural differences
persist
15%-20%
Good deal well executed• Well structured
M&A approach with excellence in all phases of the process
Only small part of deals are healthy and value creating
Mergers & Acquisition – Why they Succeed and Fail
45%-50%
30%-40%Successful M&A
Failed/ neutral M&A
Bad deal• Weak strategic fit• Unrealistic
synergies• Price too high
Source:McKinsey analysis
Good deal poorly implemented• Poor integration
management • Loss of key staff• Customer losses• Cultural differences
persist
15%-20%
Good deal well executed• Well structured
M&A approach with excellence in all phases of the process
Earned the right to buy
Disciplined transaction processes
• Strong baseline performance (e.g., high ROIC)
• Distinctive capabilities to add value to the target business
• Clearly defined strategy to create value through the deal
• Structured, documented processes• BU management involved in due diligence• Clear ownership end-to-end• Integration issues considered early on• Pricing discipline (avoiding hubris/deal
fever)• In-depth understanding of achievable
synergies (size, time to capture)
Excelling in post-deal execution
• Aggressive approach to bottom-line value capture (vs. just the process of integration)
• Focus on customer retention
Behaviors of successful acquirers
Mergers & Acquisition – Value Creation and Destruction
45%-50%
30%-40%Successful M&A
Failed/ neutral M&A
Bad deal• Weak strategic fit• Unrealistic
synergies• Price too high
Source:McKinsey analysis
Good deal poorly implemented• Poor integration
management • Loss of key staff• Customer losses• Cultural differences
persist
15%-20%
Good deal well executed• Well structured
M&A approach with excellence in all phases of the process
Mergers & Acquisition – Value Creation and DestructionOnly small part of deals are healthy and value creating
