Articles - December 2018

  • Sky high valuations, fierce competition, and scarcity of quality targets…the oft-repeated description of our current deal environment.  But in the face of that, private equity firms remain resilient, continuing to invest (as they must) and outperforming their public market peers.  According to a recent Pitchbook report, U.S., sponsor-backed acquisitions have increased from 24.7% of all transactions in Q1, 2016 to 29.8% in Q2, 2017.  As for performance, the data indicates that even bottom-ranked PE firms are outperforming the public markets over a one and fifteen-year time horizon, and their top-ranked peers are generating considerably higher returns.

    In the first half of 2017, U.S. PE fundraising continued to thrive, bringing along the associated need to invest.  As one industry observer points out: “The simple fact is that if sponsors don’t do deals, they fade away”[1].  But how do they do it in this seller’s market? Based on a review of several industry reports[2] and our own experience, several clear trends emerge...

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  • Get the Most Out of Your Merger: Key Activities to Achieve Revenue Synergies

    While M&A transactions are driven by an assortment of reasons, the realization of synergies is omnipresent. An acquirer’s focus, post-merger, is more frequently on cost synergies, as they are more tangible and easier to achieve than revenue synergies. In fact, a recent Mckinsey article Merge to grow: Realizing the full commercial potential of your merger revealed that revenue growth of companies involved in large merger deals tend to decline post-transaction.  And while many companies do expect revenue synergies to comprise a significant component of total deal synergies, less than a quarter report achieving 80% of their target[1].

    According to Tim Morton, Managing Partner at Prompta Consulting Group, and an expert on post-merger integration:

    “Far too often the M&A focus is on achieving cost synergies, [and] the culture, people, processes and ways of working are often overlooked. It’s paramount for companies to have a clearly planned vision of success to support the achievement of M&A revenue synergies.”

    So how to get the most out of your merger? Please click "Open in Browser" to read our full article.

     

    [1] According to a Deloitte report on acquisition synergies  

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  • You’ve spent years, decades even, building your business.  And along the way, you’ve figured things out, learned from your mistakes, and realized success.  Now you’re ready to consider an exit strategy; maybe you’re thinking about selling imminently, or in the next five years.  You have friends and colleagues who have gone through this. Some have hired M&A advisers, while others opted to do it themselves, as they’ve always done, avoiding the advisory success fee in the process. 

    What should you do?  Does an M&A adviser create tangible value in a sale of business, or given the associated fees, and the knowledge you have of your industry, does it make more sense to do it yourself?

    Last month, we considered whether business owners who hired M&A advisers to manage their sale process received a higher sale price than those that did it themselves. We reported on an independent study of sale prices received by more than 3000 private sellers, which concluded that private sellers retaining advisers receive an acquisition premium of 6-25 % over those that do not.  But why do adviser-assisted sellers get that acquisition premium?  And what is the net effect after advisory fees are factored in?  We try and answer those questions this week.

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  • While M&A transactions are driven by an assortment of reasons, the realization of synergies is omnipresent. An acquirer’s focus, post-merger, is more frequently on cost synergies, as they are more tangible and easier to achieve than revenue synergies. In fact, a recent Mckinsey article Merge to grow: Realizing the full commercial potential of your merger revealed that revenue growth of companies involved in large merger deals tend to decline post-transaction.  And while many companies do expect revenue synergies to comprise a significant component of total deal synergies, less than a quarter report achieving 80% of their target[1].

    According to Tim Morton, Managing Partner at Prompta Consulting Group, and an expert on post-merger integration:

    “Far too often the M&A focus is on achieving cost synergies, [and] the culture, people, processes and ways of working are often overlooked. It’s paramount for companies to have a clearly planned vision of success to support the achievement of M&A revenue synergies.”

    So how to get the most out of your merger? Read our full article to find out.


    [1] According to a Deloitte report on acquisition synergies  

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  • We write regularly about growth through acquisition in our newsletter.  This week, however, we are shifting our focus to the importance of organic growth.  After all, as noted in the HBR article Creating an Organic Growth Machine, acquirers need to generate organic growth in the businesses they buy to make their acquisitions successful.  Cost synergies only go so far, generating cost savings that justify an acquisition premium in only 36% of transactions.

    A recent McKinsey article examined the growth profiles of businesses that succeed at driving organic growth (“growers”).  Drawing on survey results of almost 600 executives in the EU and North America, the authors found that growth strategies and behavior fall into three broad profiles:

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  • League of the Overshadowed

    Posted By: Joseph Shupac

    In the realm of economics, there are three very large countries which, while not exactly overlooked, nevertheless tend to be overshadowed by their even larger neighbours, the United States and China. These three overshadowed countries are Japan, Canada, and Mexico.

    Japan is the third largest economy in the world. Canada is the tenth largest economy in the world and the second largest landmass. And Mexico is the only country, apart from the U.S. or the BRIC states, to be among the top fifteen in the world in economic size, population, and landmass.

    Currently, trade between Canada, Mexico, and Japan is quite small. Neither Canada nor Mexico are included among Japan’s top fifteen trade partners. And while Mexico and Canada do considerable trade with one another — Mexico recently overtook Britain to become Canada’s third biggest trade partner — Mexico accounts for less than three percent of Canada’s total trade. Their trade with one another is greatly eclipsed by their trade with the U.S.. Indeed, California alone trades more with Canada, Mexico, and Japan than they do with one another.

    The current U.S. administration, however, is creating uncertainty for its trade relationships with Canada, Mexico, and Japan. President Trump’s first executive order was to withdraw from the Trans-Pacific Trade Partnership (TPP), in which Japan would have accounted for over 60 percent of the twelve member-states’ GDP, apart from the U.S. itself. Trump has also signaled his intention to tighten the U.S.-Mexico border and reduce legal and illegal immigration into the U.S.. Additionally, he has triggered a renegotiation of NAFTA to remedy what he has called the “worst trade deal the U.S. has ever signed”.

    These actions could have the effect of driving U.S. trade partners closer together. Canada and Mexico have an interest in showing that they can trade with one another regardless of what the U.S. government intends to say or do about NAFTA. Canadian cities would also become the obvious destination for Latin American emigrants, in the event that the U.S. government follows through on its recently announced plan to reduce legal immigration while prioritizing immigrants with English-language proficiency.

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