M&A Activity – Give or Take
A buzz of M&A occurred in 2015 with the world setting a new M&A activity record. But is the buzz a sign of investment success? Quite often it is not. Consider a couple of recent examples such as Microsoft having to write off 96% of the investment in Nokia handsets ($7.9b) and closer to home, iconic law firm Slater & Gordon writing off 67% of the acquisition in UK firm Quindell ($1.2b) sending its share price into a nose dive to less than 30 cents after it had once peaked at over $8 a year earlier.
Given all the due diligence that occurs prior to an M&A transaction, that write offs like these happen is simply staggering! So one has to ask, how should a potential M&A transaction be considered if it is to be successful and add to shareholder value? The answer is quite simple. Look at what the acquirer can provide to the target, meaning look at what can be ‘given’ rather than ‘taken’.
Here are three ways to give:
See, it’s all about giving rather than taking and there are probably many other ways to achieve that than just the three identified above.
Now very quickly back to the Slater & Gordon saga. It is very interesting to note that last month, the ANZ Bank appointed a new CFO. That in itself is not the big deal. The big deal is that the new CFO comes from an investment banking background and guess which major M&A deal she facilitated? The Slater & Gordon acquisition of Quindell. OYMBJ!
Reference: “M&A: The One Thing You Need to Get Right”, Roger L. Martin, Harvard Business Review, June 2016.
A buzz of M&A occurred in 2015 with the world setting a new M&A activity record. But is the buzz a sign of investment success? Quite often it is not. Consider a couple of recent examples such as Microsoft having to write off 96% of the investment in Nokia handsets ($7.9b) and closer to home, iconic law firm Slater & Gordon writing off 67% of the acquisition in UK firm Quindell ($1.2b) sending its share price into a nose dive to less than 30 cents after it had once peaked at over $8 a year earlier.
Given all the due diligence that occurs prior to an M&A transaction, that write offs like these happen is simply staggering! So one has to ask, how should a potential M&A transaction be considered if it is to be successful and add to shareholder value? The answer is quite simple. Look at what the acquirer can provide to the target, meaning look at what can be ‘given’ rather than ‘taken’.
Here are three ways to give:
- Provide capital more cost effectively – this applies when the acquirer which has access to capital at a lower cost than what the target company has access to capital, substitutes the high price capital for the lower price capital for the benefit of the target company.
- Provide better management oversight and skill – this applies when the acquirer appoints new and improved management to the target company that can make the target a more efficient organisation because it makes better decisions (the private equity model).
- Share value capability – this simply means making assets of the acquirer available to be used by the target so that the target does not need to use similar assets. It is an economies of scale factor.
See, it’s all about giving rather than taking and there are probably many other ways to achieve that than just the three identified above.
Now very quickly back to the Slater & Gordon saga. It is very interesting to note that last month, the ANZ Bank appointed a new CFO. That in itself is not the big deal. The big deal is that the new CFO comes from an investment banking background and guess which major M&A deal she facilitated? The Slater & Gordon acquisition of Quindell. OYMBJ!
Reference: “M&A: The One Thing You Need to Get Right”, Roger L. Martin, Harvard Business Review, June 2016.