mergers & acquisitions

For sellers, M&A is usually a welcome and wealth generating activity.

For the buyers however, life is not so simple. The cynical 'conventional wisdom' is that mergers destroy value, or at best break even. While this is not quite accurate, M&A is certainly no easy path to riches. On average, buyers earn no more than the going rate of return on their investment. In other words, mergers on average neither improve nor damage share price. Suggesting that firms might have been better off spending their money elsewhere.

Despite this, mergers remain high on most companys' corporate agenda. When genuine synergies can be found - in other words when the buyer extracts value above and beyond the purchase price - then they make a great deal of sense. The catch is that these synergies are elusive.

Insight SRI helps companies structure mergers by targeting the desired outcome of the merger. We also bring a harsh pragmatism to the concept of synergies. While many firms focus on post-merger integration, Insight SRI prefers to fix problems before they become problems. Our attention to pre-merger integration, otherwise known as planning, due diligence, and good strategy is possibly even more important than integration after the cheques are signed.

Part of Insight SRI’s framework approach to evaluating and managing
M&A activity. Based on the excellent work of Dean R.F. Brunner, UVA

Insight SRI has helped firms set their overall merger strategies; provided quantitative analysis of potential merger benefits (compared to other options); and helped companies to select and evaluate acquisition targets.

Example:

Insight SRI is helping a manufacturing firm use mergers to help achieve a significant uplift to the share price. In their case, mergers can be used to send convincing signal to the market that they are shifting from low margin manufacturing to higher value services. This changes the fundamentals of how their cash flows are valued, driving an increase in share price without major changes to the underlying cash flows. Thus, the merger activity becomes one piece of a larger strategy to achieve a fundamental change in how the market values shares relative to turnover/EBITDA.

As far as we know, the concept of using M&A to drive fundamental changes in how the market values the buyer is unique to Insight SRI.

Example:

In another instance, Insight SRI was asked to develop one aerospace firm’s strategy in hte material's sector. Again, we developed an unconventional Acquisition strategy, based on a one-off opportunity to realise an extraordinary return. In this case the buyer hoped the injection of new, proprietary technologies to the acquisition client would lifting them from an "Tier 5" supplier starting point (~£20M revenue) to a "Tier 3" status (£200M-£1Bn revenue). Thus the acquisition strategy was built on pragmatic "synergies" not between the two companies (hard to achieve), but on what was essentially a turn-around opportunity. Ourt client had the potential to increase revenue by an order of magnitude or more in the target as a stand alone entity, without having to worry about the mess of integrating the two firms.

With all of the above, it is important to bear in mind that M&A is on average a break-even proposition for the buyer. High return strategies are the exception and not the rule.

Unless real synergies can be achieved or unless the acquisition fulfils some genuine strategic need, the odds are that the buyer’s share price will not be affected by the acquisition.

More often than not, and despite the “acquisition fever” and optimism/excitement that grips a Board in the midst of a buying process, the answer to M&A should be “Don’t do it.” Unlike many firms Insight SRI is not afraid to say so when this is the case.

Links:

note that although some of the following sites provide small amounts of free information, most are fee based services.

M&A / Financial Market data sources

Acquisitions Monthly

Print publication, with articles from 1988 onwards available online. Includes breaking news from London, New York and Hong Kong, snapshots of daily and weekly data, articles on Global Trends, daily update on deals.

Berkshire Hathaway

Warren Buffett's website. His annual report letters tend to be very interesting.

Bloomberg

The “master” source for real-time financial markets news and information.

Robert F. Bruner

Robert Bruner is Dean of the Darden Graduate School of Business at the University of Virginia.

Corpfin Worldwide

Database of UK, European and US Corporate Finance transactions from 1993 onwards.Breaks transactions into 28 deal types. Detailed information available on deals > UK £500,000. A free monthly review is available as a PDF.

Corporate Finance Network

Includes a low quality and incomplete “deals database”, with largely anonymous headline level information only. Not useful.

The Corporate Library

Research and data services, with some useful information and offering (for a fee) a detailed customer research service. Includes offer of a free trial but only after a salesman has contacted you.

Dealogic Mergers & Acquisitions

Worldwide transaction coverage, including public offers, open market purchases, stock swaps, buy-outs, privatizations, share buy-backs and acquisitions. Includes a set of analytical tools. Free access removed, must now become a dialogic client to access.

Edgar Scan

Lets you download the SEC “EDGAR” files into HTML or Excel spreadsheet formats.

UK Central Statistical Office

Business and ecomomics data, time series data on M&A activity involving UK companies. (and other aspects of corporate financial performance).

FactSet Mergerstat

Tracks formal transfers of ownership > 5% of a company's equity. Transactions are recorded as they are announced, not as they are completed. Free news headline summaries, other information available for purchase.

Fisher College

Fisher College of Business at Ohio State University. Contains an excellent "Financial Data Finder"

FT.com

M&A page on the FT, including current headlines and links to previous articles and analyst assessments.

Hoovers

A commercial source for information on a company by company, and good but relatively high overviews of data on an industry by industry level. Also includes business news. Paid service.

M&A Monitor

Analyses selected corporate mergers and acquisitions. Uses papers and data published by the principals and regulators. Transaction reports in particular contain excellent information.

mergermarket.com

Operated by the FY, this service includes some proprietary origination intelligence, plus a database of European, American and Asia-Pacific transactions with fully sourced financials. Other data available, including legal, advisor lists, and quarterly summaries. Tracks over 2000 sources for M&A news on a daily basis.

NVST Private Equity Network

Claims to offer the only comprehensive source of information on mid-market transactions, varying between $1 million and $100 million in size. Subscription required.

OCC

News about tender offers and other corporate events such as IPO, share buybacks, etc.,.

SEC DATA

The premier commercial database for research in American M&A.

The U.S. Securities and Exchange Commission

Website allows you to download free copies of filings with the U.S. Securities and Exchange Commission.

www.sedar.com

The official site for access to public securities documents publicly filed information with the Canadian Securities Administrators (CSA) in the SEDAR filing system.

Takeover Stock Report

Website for Takeover Stock Report, providing information about possible targets, and developments in announced deals. Expensive.

Thomson Mergers

Sourced directly from Thomson's SDC Platinum, this service offers complete global coverage of M&A data from 1985 onwards. Provides "up to the minute" mergers and acquisitions news and a range of pre-generated league tables as well as enabling users to run searches and generate their own league tables.

Zephyr

Information on M&A, private equity and IPOs. Historical data on more than 300,000 transactions. US and European deals coverd from 1997 onwards. Current coverage is world-wide.