M&A - deal or no deal?

Saturday, November 14, 2015

Dell hit the headlines of all business media recently with their proposed $67 billion takeover of EMC, making it one of the largest leveraged buyout deals in history. The chip-maker is not alone in the merger and acquisition (M&A) scene as Western Digital similarly announced a $19 billion deal to buy out SanDisk yesterday. With a slew of M&A activities happening, is this corporate action indeed useful for companies seeking growth beyond a certain critical mass?

It may be categorised that successful companies that derived growth from M&A focused on three key aspects:
  • Preserving or enhancing business momentum, particularly in organic growth  
  • Executing more deals; through a systematic and disciplined approach to more deal discovery
  • Translating each deal into more top and bottom line growth
In order for a successful M&A to be executed, it first needs to be aligned with accelerating growth. While this sounds like common sense, identifying the deal archetypes and rationales marks a much complex affair. So what entails?

Expansion of customer base
  • This can help improve scale of offering, reach new geographies or refine value proposition from greater market share
  • Existing and new customer opportunities would be a crucial parameter
  • A classic example is the combination of various travel sites such as TripAdvisor and Expedia under the broad umbrella of IAC
Complementing gaps in product offerings
  • Undertaking a new company that addresses a gap in existing product or service offering helps strengthen value proposition and sharpens competitive edge
  • This is evident in Salesforce’s acquisition of Jigsaw to offer automated processes in its data collection processes
Speed to adjacency
  • It is common for companies (particularly Technology companies as it is a fast-evolving industry) to pursue M&A opportunities in adjacent markets to expand beyond their core offering
  • Adobe and Oracle for instance are serial adjacency acquirers where the key to success is the ability to understand core differentiators in targets
Successful M&A initiatives should be robust and build on the Group’s core business. The combination of organic and inorganic growth should align the deal rationale with companies’ pressing growth challenges. This inherently allows companies to survive amidst the dynamic and competitive industry landscapes and deliver shareholder value. Conversely, M&A can stifle or disrupt growth should integration fails or occurs episodically.

What do you say - deal or no deal?

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