Mand a toolkit facts on manda

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Mand a toolkit facts on manda

  1. 1. M&A TOOLKIT Strategic Fit: Facts on M&A© 2007-2013 IESIES Development Ltd. All Ltd. Reserved © 2007-2013 Development Rights All Rights Reserved
  2. 2. Only 20% of M&A deals create valueDEAL VALUE CREATION 1996-1999 Deal Created Value Deal Destroyed 17% Value 53% Value 30% NeutralDefinition of value creation:Impact on share price compared to peers 1 year after deal closedSource: KPMG Global study, 1999, based on 700 deals © 2007-2013 IES Development Ltd. All Rights Reserved
  3. 3. Making small deals in related businesses improves Created value the odds Neutral/ destroyed 100% value 80% 60% 40% 20% 45 38 23 27 14 0% ALL Small Large Small Large DEALS Related UnrelatedSource: McKinsey study, Valuation, 2007-2013 IES Development Ltd. All Rights Reserved © Copeland, Koller and Murrin
  4. 4. Deals where the company has a strong core business Created value are more likely to be successful Neutral/ destroyed value 100% 80% 60% 40% 20% 39 23 0% 6 ALL DEALS Weak core Strong coreSource: Valuation, Copeland, Koller andIES Development Ltd. All Rights Reserved © 2007-2013 Murrin
  5. 5. Pure stock deals did not even increase the value of the target and acquirerNet increase (as %) in market capitalisation of target AND acquirer © 2007-2013 IES Development Ltd. All Rights Reserved
  6. 6. 69% of pure stock deals destroyed value for the acquirer’s shareholdersProportion of transactions with a Negative impact on the Acquirer’s share price © 2007-2013 IES Development Ltd. All Rights Reserved
  7. 7. Average acquisition premiums range from 20 to 30%Source: Datastream; Dealogic; McKinsey analysis © 2007-2013 IES Development Ltd. All Rights Reserved
  8. 8. The chance of value creation improves if you do deals frequentlyRisk adjusted return% 7 6 5 4 3 2 1 0 1 11-25 Number of deals done (over 10 years)Source: SDC, FactSet, UBS © 2007-2013 IES Development Ltd. All Rights Reserved
  9. 9. Based on historical results, some types of deal are more likely to create value for the acquirerIMPROVING THE ODDS •Do small deals •……frequently…... •.….for cash…….. •…..in related businesses…… •….when you have a strong core business © 2007-2013 IES Development Ltd. All Rights Reserved
  10. 10. It is hard to explain why M&A is so popular based on valuecreation If only 20-25% of deals create value for the acquirer………. …..why are there so many? ……especially big one-offs, in unrelated businesses, for shares, when the core business is weak? © 2007-2013 IES Development Ltd. All Rights Reserved
  11. 11. © 2007-2013 IES Development Ltd. All Rights Reserved
  12. 12. Corporate M&A is very likely to have a poor decision-making processCOGNITIVE BIAS IN DECISION-MAKING Egos (agency problem) Over-optimism Poor decision- Group think making process “Sunk” cost (commitment) Confirmation bias © 2007-2013 IES Development Ltd. All Rights Reserved
  13. 13. There are 2 almost guaranteed ways to make money from M&AAll the academic studies show…….it is easy to make money from M&A 1) Sell 2) Advise © 2007-2013 IES Development Ltd. All Rights Reserved
  14. 14. SUMMARY © 2007-2013 IES Development Ltd. All Rights Reserved
  15. 15. M&A can go wrong at any stage in the transaction processMOST COMMON M&A MISTAKES •Acquiring without a clear strategy •Illusory synergies •Overpaying How many mistakes did Quaker Oats make? •Due diligence failure •Loose Post-merger integration •Post-merger culture clash © 2007-2013 IES Development Ltd. All Rights Reserved
  16. 16. There are three themes that will run through this course• The importance of a clear strategy as the foundation for M&A success• Joined up thinking – guided by the “Value Hypothesis” from deal screening through valuation, due diligence to merger integration• Healthy scepticism about M&A © 2007-2013 IES Development Ltd. All Rights Reserved
  17. 17. Some acquirers believe they can manage the target better thanexisting management…….. © 2007-2013 IES Development Ltd. All Rights Reserved
  18. 18. ………………but are often disappointed © 2007-2013 IES Development Ltd. All Rights Reserved

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