TRENDS IN MERGERS AND ACQUISITIONS

Transcription

1 TRENDS IN MERGERS AND ACQUISITIONS November 25th, 2015 Salvatore Borda Andrea Colpani Michael Santarossa Nicolò Monno Selina Nelli

2 2 Agenda INTRODUCTION DIFFERENCES and TYPES OPPORTUNITIES & THREATS REAL EXAMPLES CURRENT TRENDS EXPECTED TRENDS & CONCLUSIONS

3 3 Introduction Nowadays, none firm can compete alone Robert M. Grant

4 4 How to grow? Organically New products development Rise capacity over time M&A STRATEGIC - long run - set of activities within corporate finance world. To increase: Efficiency (cost/benefit analsys) Effectiveness ( input/output analysis)

5 5 Definitions With M&A we refers to all corporate finance transactions that lead to the linking of two or more companies. Although they are used as synonymous, mergers and acquisitions are not the same thing...

6 6 Differences & Types

7 Merger Mergers Two separate entities combine forces to create a new, joint organization. The name, usually is new as well. frequently by mutual agreement. i.e. 7

8 8 Acquisitions Acquisitions involve one firm purchasing another. There is not a birth of a new company. The Larger retains its legal entity, the smaller one ceases to exist. i.e.

9 M Vs A 9 Merging of two organization into one new company Mutual agreement More expensive than acquisition (i.e. higher legal costs) Shareholders can increase their wealth (tot assets - liabilities) Time consuming (i.e. legal issues) Dilution in ownership Usually a bigger organizations buy a small one Friendly or hostile Less expensive than merger Buyers cannot raise their capital Less time and simpler The acquirer does not experience the dilution of ownership

10 10 Types of Mergers Horizontal Two or more entities compete in the same industry segment. Vertical Generally merge at different stages of production. Co-generic Two or more entities are in the same industries but not offer the same products. Conglomerate A merger between firms that are involved in totally unrelated business activities.

11 11 Types of acquisitions Friendly Both companies agree under friendly terms. Hostile The entire process is done by force. Back Flip Very rare, when the purchasing company becomes a subsidiary of the purchased company. Reverse A private company takes over a public company.

12 12 The reasons for M&A Effecting organizational growth Management Hegemony Entry in New Markets Increasing Market Share Obtaining new products 1+1=3

13 13 M&A process 30 days days days days

14 14 Internal How to finance M&A Financial Resources External Cash Debt Equity Decision Drivers: Loans Bonds Impact of financing decisions on financial markets Location of the target company Capital structure of both companies Cash availability Corporate control M&A motivations

15 Opportunities 15

16 16 Opportunities Economies of scope Decrease operative costs Increase market share Vertical integration Geographical or other diversification Economies of scale Speed Acquire new competences Taxation (tax shield) Better quality of services

17 17 Is all that glisters gold?

18 Merger The big deal... Deal valued at a stunning $350 billion. The largest merger in American business history 18 We have a clear understanding: one company, one vision, two cultures

19 Merger The big deal... Deal valued at a stunning $350 billion. The largest merger in American business history 19 We have a clear understanding: one company, one vision, two cultures

20 ...The big failure 20 Internet bubble burst World trade center attack Lack of Synergies Big names in mngmt

21 The world s third largest auto group, over 150$ bill. revenue 21 We are creating the world s leading automotive company for the 21 century Jurgen Schrempp, Daimler chairman

22 The world s third largest auto group, over 150$ bill. revenue 22 We are creating the world s leading automotive company for the 21 century Jurgen Schrempp, Daimler chairman

23 ...A marriage made in «hell» 23 Cultural differences and opposite management thinking Different customer proposition Neither of them willing to change Structured vs lean decision making

24 Threats 24

25 25 Redundancies Conflicting objectives Internal anxiety Distraction from operations Increasing of debt Exogenous variables Different cultures Market saturation Threats

26 Trends 26

27 27 Industry Trends Vision +1% -4% +1% +4% stable % of change in share respect total deal value 2013 vs % stable stable

28 28 Macro areas: regional trends North America US$ 1.51 trillion Europe US$ 901 billion FY 2014 vs FY % FY 2014 vs FY % - 9% FY 2014 vs FY % Asia Pacific US$ 621 billion FY 2014 vs FY 2013 Central and South America US$ 137 billion + 40% FY 2014 vs FY 2013 Middle East and Africa US$ 58 billion

29 Worldwide vision 29

30 Waves M&As come in waves Martynova and Renneboog (2008) reviewed a century of transactions and identified six major waves of M&As: Usually the end of a wave coincides with a crisis or a recession

31 31 Waves Waves Periods Aspects Fourth Wave Co-Generics Mergers, Hostile Acquisition Fifth Wave Cross Border, Globalization Sixth Wave Globalization, Cross Border, Private Equity, Source: York University

32 Globalization 32

33 Globalization 33

34 Globalization is driving strategy for Cross Border The trend towards large-scale international M&A transactions appears to be a new business reality in the post-recession world 34 Increase in the confidence of dealmakers and a corresponding willingness on their part to take risk Opportunity to growth in new market with new customers Lower foreign tax rates and accumulated offshore cash

35 Cross Border Cross Border M&A YTD Tot. Value - Under $5bn Tot. Value - Over $5bn

36 Macro areas: Cross Border M&A North America 36 Inbound +192% Investment into the US increased from every major region, notably from Europe (+272% on 2013 levels). Outbound +55% Inversion transactions were a significant feature of the first half of 2014, in particular targeting European healthcare companies.

37 Macro areas: Cross Border M&A Europe 37 Inbound +69% Investment into Europe rose 69% on 2013 levels, largely reflecting US megadeals. Outbound +190% Deals such as GTECH s US$ 4.7bn acquisition of International Game Technology and Publicis Groupe s pending US$ 3.7bn offer for Sapient helped to boost flows into the US.

38 Macro areas: Cross Border M&A Asia Pacific 38 Inbound +18% Chinese businesses continue to be of interest to those in other regions, particularly North America (+248% to US$ 8.4bn), and also to other parts of the Asia Pacific region (+325% to US$ 62.7bn). Outbound +14% Overall outbound M&A from the region rose on 2013 levels (+14%).

39 Macro areas: Cross Border M&A Central & South America 39 Inbound +86% Total inbound investment into Latin America increased 86% on 2013 levels, to US$ 84.2bn. Outbound +201% Significant increased Latin American investment into Europe (+534%) targeted opportunities in Spain, Portugal (e.g. Oi/Portugal Telecom deal) and China

40 Macro areas: Cross Border M&A Middle East & Africa 40 Inbound -59% Geopolitical tensions weakened M&A investment into the region during 2014: the African M&A market was down 10% on 2013 levels. Outbound +74% Cash-rich regional corporates and Middle Eastern sovereign wealth funds drove a rise in outbound M&A from the region (+74%), particularly into North America.

41 41 Conclusions and expected trends

42 42 Conclusions Total M&A activity (by value) increased 45% on 2013 levels, exceeding US$ 3.23trn (up from US$ 2.23trn) was the best year for M&A (by value) since The «locomotive» US market performed strongly, with deals totaling US$ 1.51trn, including a significant increase in inbound M&A (by value). Cross-border Cross-border M&A also shot up, representing about 40% of total M&A (up from 34% last year) and the highest proportion of total M&A (by value) since Healthcare Outperformed other industries as its market share of total deals rose by 4% (+119% in deal value 2013 vs 2014), buoyed by several mega-deals such as Actavis/Forest Laboratories.

43 43 Expected trends Capacity to invest Appetite to invest / / Company can bear Investments in M&A Investors are looking for external growth

44 Link to the video: 44

45 45 THANK you for The ATTENTION

46 References - The M&A market is poised for continued growth in 2015, J.P. Morgan (January 2015) - Strategic planning for corporate M&A ; - Report Mergers and Acquisitions (year 2014); - M&A evolution: Strategies for New Deal Landscape,Hogan Lovells (Financial Times) - Acqusition motives and methods of financing, Toon Borghgraef (year 2014) - What really determins the payment methods in M&A Deals, Pinghshun Zhang (year 2001) - Our insights into M&A trends 2015, Clifford Chance (January 2015) - The era of cross-border M&A: How current market dynamics are changing the M&A landscape, Marc Zenner et al. (year 2008) - Chart of the day, Time Warner AOL (may 2009); - The DaimlerChrysler emulsion, The Economist (July 2000) - The M&A Paradox: Factors of Success and Failure in Mergers and Acquisitions Yaakov Weber at al. (January 2014) 46

47 References - Thompson financial and KPMG M&A report Valuation for mergers and acquisition: an overview, Kenneth Ferris & Barbara Petitt (August 2013) - What is the M&A Predictor, Tom Franks What Is a Horizontal Merger and a Vertical Merger?, Ian Linton - Mergers And Acquisitions: Understanding Takeovers, - Cross Border mergers-accounting/cross-border-acquisitions-accountingconsiderations-relating-to-income-taxes.html - Cross Border detail.aspx?g=f6651 edb-4dc a809-89d b8 47