Wednesday, August 14, 2013

M&A Strategy for Delivering Shareholder Wealth



Mergers and acquisitions (M&A) represent a core component and popular corporate strategy, based on the level of M&A activity in the marketplace.

Corporate Strategy – as a topic – is a core subject for graduate business students, and includes corporate finance and management.  M&A – as a business strategy – concentrates on the buying, selling, dividing and combining of different companies and similar entities. 

The primary purpose of adopting an M&A business strategy in a for-profit business environment seems to help an enterprise grow rapidly in its sector, or location of origin, or a new field or new location.  Ideally, this is achieved without having to create a subsidiary, other child entity, or perhaps via a joint venture.

An acquisition (or takeover) can be defined as the purchase of a business by another business entity.  A purchase can further be defined by considering that 100% (or nearly 100%) of all the assets or ownership equity of the acquired entity had been taken over by the acquirer.

Acquisitions can also be divided into private and public acquisitions.  This simply depends on whether the acquirer is listed on a public stock exchange, or not.  Additional dimensions exit, for example whether an acquisition may be considered friendly or hostile.

A merger (or consolidation of two or more businesses) can be defined as two companies combining together, to form a new enterprise altogether.  Most frequently, neither of the companies – pre-merger – would remain, nor exist independently afterwards.

Achieving success when adopting an M&A strategy has seemingly proven to be very difficult, according to some practitioners, consultants and academics.  The success, or failure, of M&A as a corporate strategy is explored in detail in my research paper entitled M&A (As a Corporate Strategy for Delivering Shareholder Value), which is available on your Amazon Kindle for only $0.99. 

The actual measurement or metrics – by which M&A success or failure should be determined – also forms part of the core purpose of the research shared.

Various studies have shown that 50% of acquisitions were unsuccessful, and many more suggest failure rates much greater than that.  An acquisition process is very complex, and there are many variables and different business dimensions that can influence the outcome. 

It seems that serial acquirers appear to be more successful with M&A than companies who only make an acquisition occasionally.  But to this end, growth as a goal or objective is often measured exclusively in financial terms.

Shareholder wealth, or growth in shareholder value, or enterprise value achieved as a result of successful corporate strategy are frequently assessed using relatively simple financial metrics, like an increase in the stock price of a publicly traded company, or a leap in earnings per share (EPS), and so on.

Drawing a distinction between mergers and acquisitions has become increasingly blurred in recent times.  This blurring is most obvious when success is measured in terms of the ultimate economic outcome.

My research paper includes real-life examples like the Facebook (FB) acquisition of Instagram, along with examples that include SASOL & Talisman (TLM); CNN & Mashable; Manulife Financial (MFC) acquiring John Hancock and UPS attempting to acquire TNT Express (TNTE).

I trust that you will enjoy reading my research paper, as much as I had enjoyed researching M&A, and the practitioners’ quest to deliver shareholder wealth.