FOM MBA Assignment-Fusion waves in the Mergers and Acquisitions M&A market - Adam M. Skafi.pptx.pdf

Assignment-Fusion waves in the Mergers and Acquisitions M&A market.
Intro to M&A
Mergers, acquisitions and takeovers are a part of the business world which in theory, they can develop a competitive advantage and ultimately maximize shareholder value or generate growth…but according to the BCG, most of the deals destroy value due to challenges in post-merger integration.

1. M. Skafi
06.07.2018
Fusion waves in the M & A market
Adam M. Skafi – MBA, FOM Düsseldorf

2. 2
Table of Content
Different forms and concepts of Mergers and Acquisitions
Reasons and motives of M&A
Recent trends
M&A Snapshots 1893 Wave #1 – 2015 Wave #7
Conclusion

3. 3
Different forms and concepts of Mergers and Acquisitions
Vertical
The merging company is targeting
companies of its suppliers or
distributors. Different operation levels
within supply chain
Horizontal
The merging company is targeting a
company from the same industry

Conglomerate
The merging company is targeting
companies from unrelated industries.
M&A
activities are
impacted by
several factors
Characteristics
•Always tightened with
headcount reductions.
•Aggressive divestiture
of marginal assets.
•Bonded with benefits
envisioned for
shareholders,
customers and
employees.
Intro to M&A
Mergers, acquisitions and
takeovers are a part of the
business world which in
theory, they can develop a
competitive advantage and
ultimately maximize
shareholder value or
generate growth…but
according to the BCG,
most of the deals destroy
value due to challenges in
post-merger integration.

4. Reasons and motives of M&A
04
Into additional markets and/or
by diversifying services and
portfolio (Cognizant acquires
Zone in UK)
Expansion
05
Embedding corporate
transactions into its overall
strategy
Overall Strategy
03
Limited organic companies'
growth
Limitation
02
Create an extra value to
either compete or to create a
monopoly (Bayer AG
acquiring Monsanto)
Value
01
Growth is the main driver for
companies to merge and
acquire
Growth
BGC - 2017 M&A report
2013-2016, tech-driven
acquisitions have been more
than doubled surpassing a value
of almost US $700 billion
BGC - 2017 M&A report
Non-tech sector are actively
(>70%) acquiring most of tech
companies.

5. 5
Recent trends in M&A activities
PE Investments
The insatiable need of private equity's
to invest, reaching $535 billion of funds
in 2016.
Digital transformation
High-tech deals represented 30% out of
total $2.5 trillion of completed M&A
transactions in 2016.
China’s appetite
China's appetite for international M&A as in 2016,
deals reached $200 billion and 2/3 of its M&A
activity is outbound with Europe and North America
(e.g. acquisition of KUKA AG)
Other drivers
Market uncertainties and increase
volatility (e.g .Trumpiation or Trump’s
polices)
Finance
Quantitative easing programs and by
central banks: ECB complementary
measures taken to combat the
disinflationary forces that intensified in
mid-2014.
Geopolitical events
are fundamental driver which could be
a motive but also can hinder M&A
activities (e.g. Brexit).

6. 6
Companies which are able to execute at
least five major transactions, buying or
selling over a five-year period, are those
who can sustain a good "portfolio masters"
development
“
“

7. M&A Snapshot 1893-1904
Wave
#1
Known
Known as the
“Great Merger
Movement” in the
US
Horizontal
Companies were
either competitors or
rivals
Industries
Industries:
manufacturing and
transportation sectors
Started
Before the beginning of the
World War I
Motives
•The main motive was the seek for an
economical growth after an economic
depression, legislation governing incorporation,
and the rise of industrial stocks in the 1890s.
•Attempt to consolidate industrial production &
reduce competition ?????? introduced monopolies
& market dominance
Companies
•Companies operating in steel, oil, mining and
railroads as well as telecommunications
(telephone).
•The United States Steel Corporation ?????? largest
steel producer and largest corporation in the
world at that time.
•International Harvester Corporation (IHC) was
an American machinery manufacturer.
End
The first wave came to an end around 1905
caused by the equity market crash

8. M&A Snapshot 1910, 1916-1929
Wave
#2
Started
post the World War I01
Reduced monopoly
due to enhanced regulations led companies to switch from horizontal to vertical (suppliers or distributors)02
Agglomerates
consolidated companies03
Results
Economic boom ?????? increased investment capital??????04
Companies
•Allied Chemical Corporation was one of the
agglomerates formed at that period, consolidated
control over five different companies operating in
related businesses.
•Formation of new firms that still operates today
that includes General Motors and IBM
1910 1916 1929
crash stock market ?????? Wave collapsed in 1929

9. M&A Snapshot 1955-1970
Wave
#3
1955
Acts
TypeStarted
After the global economic
depression of the 1930s along with
the World War II prevented the
development of Mergers and
Acquisitions until the 1950s
Governments
Effort to strengthen antitrust
laws (monopolism) and
encourage competition
Regulations
U.S. federal law that
strengthened the Clayton
Antitrust Act of 1914 ?????? prevent
the acquisition of another
company’s stock if the action
would lessen the competition
Conglomerate
Did not involve large acquirers, it was
characterized by diversifications
(unrelated businesses got merged and
acquired) for achieving an economic
growth through diversifications
(Conglomerate mergers)
Cheer for Diversification
The percentage of firms in unrelated
business category increased from 4%
in 1949 to about 9% in 1964 reaching
over 21% in 1974.
•Restrictions on companies’
expansion horizontally and
vertically.
•Less well developed external
capital markets and labor
inefficiencies (technological and
social changes)
Effort
21%

10. M&A Snapshot 1980-1989
Wave
#4
Emerged

?????? in the 1980’s after
significant inefficiencies in
the diversification that
companies used in the 3rd
wave

?????? M&A transactions were
larger than the ones in the
previous wave

Expansion

?????? Reached its peak in the
mid. of the 80s and it was a
combination of “acquisitions
and divestures” implied by
many US corporations
through business expansion
for those that offered
opportunities for
competitive advantage and
downsizing for those that
have limited competitive
advantage ability.

Transactions

Divestitures constituted
about 20-40% of the
M&A transactions
financed by bank debt
and junk bonds acquired

most of the M&A
transactions were of
nature “hostile”
(unfriendly) takeover
where “many acquirers
were financiers, and the
type of payment was
often cash rather than
stock”


kauffman.org

11. M&A Snapshot 1985-2002
Started as a response to
various economic shocks
(e.g. antitrust policy and
deregulations) and
resulted of consolidation of
major industries
In the U.S. more than
10,638 acquisitions deals
have happened in 1998.
Companies tried to de-conglomerate by returning to its core business as they
sold off some of their component businesses to leverage the focus on the core
business portfolio
Globalization, technological innovation, deregulation
and privatization, and financial markets boom were
major reasons for this wave to surge giving it an
international nature
Remarkably, Europe experienced a significant
growth in the M&A activity. By the end of the
1990’s M&A activity in Europe was as large as
those happened in the U.S.
Wave
#5
Worldwide merger waves 1985-2004

12. 12
BCG's research on economic crises found
that M&A in downturns is more likely to
create value than deals done in upturns
giving companies the capacity to reshape
their industries
“
“

13. M&A Snapshot 2003-2008
Wave
#6
Start
Market
Europe
Finance
The PE was a dominant financing source for the transactions
In 2008, the global merger volume dropped by almost a 3rd
Caused by the “lack of available credit, plunging stock markets and a worldwide financial crisis”
In Europe the M&A activity reached USD 760 billion
43% were driven by cross-border acquisitions
Started falling to around 40% in 2009
The main trigger is the market recovery
Caused after the 2000 economy downturn
2002-2004, M&A increased in the U.S. in 71% (USD 1 trillion)
Since 2003, M&A activity has been on the rise again
Global wave in U.S., Europe, and Asia
Known as the “leverage bubble” wave

14. M&A snapshot, 2015 – 2018
Wave
#7?
04
Started
The total M&A deals in 2015
increased by almost 40% on top of
2014 growth of more than 20%
01
02
03
Top Sectors
were health care (102% year-on-year growth),
consumer and retail (53%) and media, entertainment
and telecommunication (48%).
High-Tech
High-tech deals represented $2.5 trillion of
completed M&A in 2016. ~ 70% of all tech deals
involved buyers from outside the tech sector.

Cautions
Corporate caution and promoted market unpredictability in
2016 (political uncertainty, volatility in equity markets,
increase of tax…).
Continuous Increase
Q1 of 2018 M&A totaled US$1.2 trillion an
increase of 60% compared to the Q1 of
2017 and the strongest first quarter for
global M&A since 1980
Worldwide Announced M&A by Deal Size – 1999-2018
„
Europe reported 15,357 M&A deals in 2016?????? 2,472
deals Industrials, 1,938 deals in High Technology,
1,749 deals in Consumer Products & Services and
1,639 deals in Financial Services

15. Conclusion and Future Outlook
01
02
03
04
Economic Recovery
M&A waves are likely to be triggered during periods of economic recovery after some types of
economic shock or recession which creates an excessive heterogeneity and often
“synchronized with periods of rapid credit expansion”
Technological and institutional changes were as well essential
triggers that widened markets in the First, Second, and Fifth
Merger Waves
Measuring M&A activity as a percentage of GDP shows that the world
economy has been “consistently outgrew” over the recent two key M&A
cycles in the periods of 1999-2000 and 2005-2007
Europe predicts a grow between 1.6% and 1.8%
through 2021. On the contrary, China’s economic
slowdown will be likely impacting the growth of M&A
market in Asia-Pacific as in in 2018
Market behaviour
GDP
M&A Activity
{ Despite the fact that M&A deals
has been increased in the past
couple of years still, it's very hard
to predict the outcome of the
current digital M&A wave
transition. But nonetheless, most
of the deals are targeting
tech-companies in order to
digitally disrupt their business
model from inside rather than
being disrupted from the outside.
}

16. GDP Growth Forecasts 2017-2021

17. 17
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18. 18
Thank you!
06.07.2018
Adam M. Skafi – MBA, FOM Düsseldorf