The new normal after a troubled period
Mergers and acquisitions are more popular than ever with companies of all sizes. The number of investment companies continues to increase, the sector is professionalising at a rapid pace, while market conditions are changing ever faster. COVID-19 has played a decisive role in this process and has accelerated certain developments in the field of mergers and acquisitions. Florijnz provides an update on the latest developments in cooperation with Dealsuite.
Monopoly position is lost
First, technology and big data are driving a merger and acquisition wave. Whereas the world of mergers and acquisitions was traditionally the prerogative of a select group of large corporations, today's market technology and annual increase in private equity parties is causing the number of M&A deals across the board to skyrocket among companies of all sizes. Almost all listed and large companies understand that in addition to organic growth (e.g. revenue, profit), they must pursue strategic deals to maximize growth.
SMEs see the added value
A growing number of mid-market companies are following the example of large corporations in this respect. They recognize the added value of M&A and are incorporating it into their growth strategy.
Transaction structures are getting more creative
Transaction structures are also becoming more diversified, and acquiring 100% of the shares is no longer the most obvious choice. Deals can nowadays result in creative structures: from total integration to a light form of collaboration. The 'Joint Venture' deal structure has gained the most popularity in this respect. This is a form of cooperation between companies in which a conscious decision is made not to merge, but to pursue a common goal while retaining their own identity.
In which companies should we participate? And how do we create value in these companies? The answers to these crucial questions have been changing recently. According to the Boston Consulting Group, a proactive and open-minded approach is most successful when an interesting target presents itself. Important decisions a company should consider include:
- Can substantial added value (short and long term) be realised?
- What financial results can be expected?
- To what extent does an acquisition increase or decrease our risk profile?
- To what extent does an acquisition contribute to our strategy?
Making a balanced decision is therefore of great importance. When an acquisition is considered as an alternative to 'in-house' development, buying is often preferred. With constant technological advances and an ever decreasing average life span of a business, those who do not proactively acquire can fall behind competitors.
The implementation of the sales process
In a world of increasing competition, market access and speed are essential within M&A teams. In the last decade, "agile" working has become a widely accepted approach and this method has impacted the M&A process in a variety of ways:
- Direct and fast initial evaluation of potential targets
- An open approach to potential deal types
- Adaptive work processes that can be tailored to circumstances
- Short internal and external (e.g. consultants, banks) lines of communication
Digitisation within company takeovers
Online meetings during the pandemic
The digitization of M&A was already well underway, but COVID-19 provided the decisive push. New ways of working deepened the understanding of potential deal partners in the ecosystem, and screening and scoring deal targets became a matter of clicks. The pandemic has put an end to in-person meetings and frequent travel, shifting to video calls through Zoom or Microsoft Teams. A report by CNBC shows that more than 95% of the transactions Goldman Sachs advised on during the pandemic took place without any face-to-face interaction. According to a McKinsey survey, more than 90 percent of executives expect the impact of COVID-19 to fundamentally change the way they do business in the coming years.
Together at the same table will make a return to an adapted degree
In the 'post-COVID' world, dealmakers will still prefer to meet in person at deal closing and before the traditional "closing dinner". But the earlier steps in the process - such as deal sourcing - will be largely digital. Mergers and acquisitions will remain a personal affair, but will be heavily supported and driven by technology.