M&A Report

Letter from the M&A Team: Beneath the M&A Headlines

The world is changing for those in the trenches getting deals done.

By Les Baird, David Harding, Andrei Vorobyov, and Suzanne Kumar

First published on febrero 08, 2022
min read


This article is part of Bain's 2022 M&A Report. Explore the report Dear friends, Welcome to the fourth annual edition of our Global M&A Report. Our mission remains constant: Use our unique position in the M&A world to connect what we see in our clients’ executive suites with the larger trends happening across the globe. The result, we hope, is to make all of us a little better at the craft of M&A. On the surface, the 2021 headline has to be “M&A is back.” And so it was, with the highest total deal value in history. Strategic M&A, including corporate acquisitions and portfolio company add-ons, saw its second-highest year on record in 2021, fueled by all-time high deal multiples. Meanwhile, financial investors, special purpose acquisition companies, and venture capital accounts saw even higher growth. Strategic buyers are seeing a growing diversity of deal types, with alternative deal models such as partnerships increasing. And 2021 brought a renewed focus on scale deals as the disruption from Covid-19 presented opportunities for strong competitors to retrench around market leadership. All of this made M&A more demanding for executives and deal professionals. Strategic buyers need an expanded set of skills to compete. Clarifying these broadened demands is why we write this report. This year’s report leads off with a quick year in review. We do start with the horse race statistics that many of our competitors focus on, but from there, we highlight exactly how the world is changing for those in the trenches trying to get deals done. The report discusses in greater detail several hot topics that might help you think about your job just a little bit differently. The report contains 26 articles by Bain partners from around the world, commenting on specific industries and geographies where we think interesting things are happening. Please pick and choose as you see fit! Finally, we have updated some of our core research underlying our belief in the concept of repeatable M&A. In a nutshell, frequent and material acquirers create greater total shareholder returns than those who don’t have as robust an M&A strategy. This pattern has held up over the past two decades, despite the M&A market’s evolution since. Our report is a large undertaking. More than 280 executives from around the world spent time with us in surveys and follow-up interviews to help us understand what is really going on. More than 60 Bain partners took up their metaphorical pens to help us write the articles, and we were supported by a great team of researchers and analysts. We love hearing from you. Send your feedback, commentary, and insights to us at M&A@bain.com. Thank you for reading, and enjoy. Sincerely, The Bain M&A Team Acknowledgments (click to expand) This report was prepared by the leadership team of Bain & Company’s Global M&A and Divestitures practice, with special direction from Andrei Vorobyov, partner; David Harding, advisory partner; Suzanne Kumar, practice vice president; Siobhan Galligan, senior manager; and an editorial team led by David Diamond. The authors wish to thank the many members of the Bain leadership team who contributed articles to this year’s report. Additionally, we wish to thank the following colleagues for their help with this report: Bain Partners Les Baird, Peter Horsley, Harshveer Singh, Colleen von Eckartsberg, Phil Leung, Sam Rovit, Dale Stafford, Yael Mohan, Dominik Foucar, and Karen Harris; Practice Directors Joerg Ohmstedt, Dahlnae Yu, Ingo Stein, and Austin Kim; Practice Senior Manager Amy Wall; Practice Managers Dustin Rohrer and Jacqueline Han; Practice Senior Analyst Anna Nowak-Dzialak; Consultant Jack O’Rourke; and Associate Consultants Chris Kellogg-Peeler and Lily Abbott. This work additionally benefited from the support of Bain Capability Network’s Siddharth Sharma, Shivani Dhondiyal, and Divyam Dewal, as well as John Peverley, senior manager with Bain’s Research and Data Services team. Methodology (click to expand) State of the market, industry, and regional M&A data Deal details and aggregate statistics (such as value, volume, multiples) were sourced primarily from Dealogic’s M&A database for this annual report. Full-year 2021 data was updated as of January 2022. This report’s focus is on strategic M&A, which includes deals inked by corporate buyers (including via sponsor exits) or private equity add-on acquisitions, because both M&A types have fundamentally strategic objectives. All other types, including financial sponsors, special purpose acquisition companies, and venture capital are classified as nonstrategic. Together, these two categories equal Dealogic’s total M&A market. Scope vs. scale To understand the nature of M&A activity, we ﬁrst identiﬁed the top 250 strategic deals for each year (top 190 strategic deals for 2021 year-to-date through September, since the analysis was concluded in October). From the initial list of deals with values greater than $1 billion, as reported by Dealogic, we excluded nonstrategic deals. These include asset or property acquisitions, ﬁnancial investments, internal reorganizations, and minority stake acquisitions. We then classiﬁed the strategic deals into scale or scope deals based on our proprietary framework applied consistently across the years. The proprietary framework uses the stated strategic rationale by the acquirer at the time of announcement to identify the key elements of the deal thesis. Based on these elements, the deals were categorized as scale or scope deals. Scale deals are intended to strengthen market leadership and lower cost position through beneﬁts of scale, such as cost synergies. Scope deals are intended to accelerate top-line growth by entering or expanding into faster-growing market segments, or by bringing in new capabilities. In reality, some deals are a blend of both scale and scope; however, the vast majority lean toward one or the other (see Exhibit A). Exhibit A About the methodology The 2021 M&A practitioners’ survey In partnership with the Gerson Lehrman Group and AlphaSights, we conducted a survey of 281 M&A practitioners. The survey ran in October 2021 in the US, Canada, Brazil, UK, Germany, France, Croatia, Sweden, Switzerland, Japan, India, and Australia. Survey participants held senior executive roles with the title of vice president, senior vice president/executive vice president, director, C-suite, or owner at companies with greater than $100 million in annual revenue, and they were responsible for M&A decision-making processes at their company. About Bain & Company’s M&A value creation study Bain has been studying corporate M&A activity for two decades. We conducted our first quantitative study of company performance as it relates to acquisition activity in 2011 and 2012 and have updated the study multiple times, including in 2021. The findings were confirmed across both studies spanning two decades. The quantitative research reviewed the financial performance and M&A activity of 2,897 publicly listed companies from the end of 2010 through the end of 2020. The initial sample included all publicly listed companies from 17 developed markets for which full financial data was available. We then excluded companies with revenue lower than $500 million in 2010 and those with major swings in their earnings before interest and taxes margin around 2010 or 2020. To compare company performance, we used total shareholder return (TSR), defined as stock price changes assuming reinvestment of cash dividends. We calculated average annual TSR using data reported by Capital IQ. We analyzed M&A activity by including all deals—approximately 32,750—announced by the companies in the sample between the beginning of 2011 and the end of 2020. The data was based on information provided by Dealogic and included all deals in which a company had made an outright purchase, an acquisition of assets or of a majority interest, or in which multistep deals have been consolidated into a single deal. For deals with undisclosed deal values, we apply a median deal value benchmark, calculated for each sector from disclosed deal values as a percentage of acquirer market capitalization, capped at $750 million. We then analyzed the acquisition activity for each company by calculating the acquisition frequency and cumulative relative deal value. Acquisition frequency was calculated as the average number of acquisitions per year over the period from the beginning of 2011 to the end of 2020. Cumulative relative deal value was calculated as the sum of deal value divided by market capitalization three months prior to announcement for all deals from the beginning of 2011 to the end of 2020. These metrics characterizing deal activity were then related to the TSR performance of various acquirer cohorts. Read the Next Chapter State of the Market Read our 2022 M&A Report Download the PDF Explore the report

Dear friends,

Welcome to the fourth annual edition of our Global M&A Report. Our mission remains constant: Use our unique position in the M&A world to connect what we see in our clients’ executive suites with the larger trends happening across the globe. The result, we hope, is to make all of us a little better at the craft of M&A.

On the surface, the 2021 headline has to be “M&A is back.” And so it was, with the highest total deal value in history. Strategic M&A, including corporate acquisitions and portfolio company add-ons, saw its second-highest year on record in 2021, fueled by all-time high deal multiples. Meanwhile, financial investors, special purpose acquisition companies, and venture capital accounts saw even higher growth. Strategic buyers are seeing a growing diversity of deal types, with alternative deal models such as partnerships increasing. And 2021 brought a renewed focus on scale deals as the disruption from Covid-19 presented opportunities for strong competitors to retrench around market leadership.

All of this made M&A more demanding for executives and deal professionals. Strategic buyers need an expanded set of skills to compete. Clarifying these broadened demands is why we write this report.

This year’s report leads off with a quick year in review. We do start with the horse race statistics that many of our competitors focus on, but from there, we highlight exactly how the world is changing for those in the trenches trying to get deals done. The report discusses in greater detail several hot topics that might help you think about your job just a little bit differently.

The report contains 26 articles by Bain partners from around the world, commenting on specific industries and geographies where we think interesting things are happening. Please pick and choose as you see fit!

Finally, we have updated some of our core research underlying our belief in the concept of repeatable M&A. In a nutshell, frequent and material acquirers create greater total shareholder returns than those who don’t have as robust an M&A strategy. This pattern has held up over the past two decades, despite the M&A market’s evolution since.

Our report is a large undertaking. More than 280 executives from around the world spent time with us in surveys and follow-up interviews to help us understand what is really going on. More than 60 Bain partners took up their metaphorical pens to help us write the articles, and we were supported by a great team of researchers and analysts.

We love hearing from you. Send your feedback, commentary, and insights to us at M&A@bain.com.

Thank you for reading, and enjoy.

Sincerely,
The Bain M&A Team

Acknowledgments (click to expand)

This report was prepared by the leadership team of Bain & Company’s Global M&A and Divestitures practice, with special direction from Andrei Vorobyov, partner; David Harding, advisory partner; Suzanne Kumar, practice vice president; Siobhan Galligan, senior manager; and an editorial team led by David Diamond.

The authors wish to thank the many members of the Bain leadership team who contributed articles to this year’s report. Additionally, we wish to thank the following colleagues for their help with this report: Bain Partners Les Baird, Peter Horsley, Harshveer Singh, Colleen von Eckartsberg, Phil Leung, Sam Rovit, Dale Stafford, Yael Mohan, Dominik Foucar, and Karen Harris; Practice Directors Joerg Ohmstedt, Dahlnae Yu, Ingo Stein, and Austin Kim; Practice Senior Manager Amy Wall; Practice Managers Dustin Rohrer and Jacqueline Han; Practice Senior Analyst Anna Nowak-Dzialak; Consultant Jack O’Rourke; and Associate Consultants Chris Kellogg-Peeler and Lily Abbott. This work additionally benefited from the support of Bain Capability Network’s Siddharth Sharma, Shivani Dhondiyal, and Divyam Dewal, as well as John Peverley, senior manager with Bain’s Research and Data Services team.

Methodology (click to expand)
State of the market, industry, and regional M&A data

Deal details and aggregate statistics (such as value, volume, multiples) were sourced primarily from Dealogic’s M&A database for this annual report. Full-year 2021 data was updated as of January 2022.

This report’s focus is on strategic M&A, which includes deals inked by corporate buyers (including via sponsor exits) or private equity add-on acquisitions, because both M&A types have fundamentally strategic objectives. All other types, including financial sponsors, special purpose acquisition companies, and venture capital are classified as nonstrategic. Together, these two categories equal Dealogic’s total M&A market.

Scope vs. scale

To understand the nature of M&A activity, we ﬁrst identiﬁed the top 250 strategic deals for each year (top 190 strategic deals for 2021 year-to-date through September, since the analysis was concluded in October). From the initial list of deals with values greater than $1 billion, as reported by Dealogic, we excluded nonstrategic deals. These include asset or property acquisitions, ﬁnancial investments, internal reorganizations, and minority stake acquisitions.

We then classiﬁed the strategic deals into scale or scope deals based on our proprietary framework applied consistently across the years. The proprietary framework uses the stated strategic rationale by the acquirer at the time of announcement to identify the key elements of the deal thesis. Based on these elements, the deals were categorized as scale or scope deals.

Scale deals are intended to strengthen market leadership and lower cost position through beneﬁts of scale, such as cost synergies. Scope deals are intended to accelerate top-line growth by entering or expanding into faster-growing market segments, or by bringing in new capabilities. In reality, some deals are a blend of both scale and scope; however, the vast majority lean toward one or the other (see Exhibit A).
Exhibit A
About the methodology
The 2021 M&A practitioners’ survey

In partnership with the Gerson Lehrman Group and AlphaSights, we conducted a survey of 281 M&A practitioners. The survey ran in October 2021 in the US, Canada, Brazil, UK, Germany, France, Croatia, Sweden, Switzerland, Japan, India, and Australia. Survey participants held senior executive roles with the title of vice president, senior vice president/executive vice president, director, C-suite, or owner at companies with greater than $100 million in annual revenue, and they were responsible for M&A decision-making processes at their company.

About Bain & Company’s M&A value creation study

Bain has been studying corporate M&A activity for two decades. We conducted our first quantitative study of company performance as it relates to acquisition activity in 2011 and 2012 and have updated the study multiple times, including in 2021. The findings were confirmed across both studies spanning two decades.

The quantitative research reviewed the financial performance and M&A activity of 2,897 publicly listed companies from the end of 2010 through the end of 2020. The initial sample included all publicly listed companies from 17 developed markets for which full financial data was available. We then excluded companies with revenue lower than $500 million in 2010 and those with major swings in their earnings before interest and taxes margin around 2010 or 2020.

To compare company performance, we used total shareholder return (TSR), defined as stock price changes assuming reinvestment of cash dividends. We calculated average annual TSR using data reported by Capital IQ. We analyzed M&A activity by including all deals—approximately 32,750—announced by the companies in the sample between the beginning of 2011 and the end of 2020. The data was based on information provided by Dealogic and included all deals in which a company had made an outright purchase, an acquisition of assets or of a majority interest, or in which multistep deals have been consolidated into a single deal. For deals with undisclosed deal values, we apply a median deal value benchmark, calculated for each sector from disclosed deal values as a percentage of acquirer market capitalization, capped at $750 million.

We then analyzed the acquisition activity for each company by calculating the acquisition frequency and cumulative relative deal value. Acquisition frequency was calculated as the average number of acquisitions per year over the period from the beginning of 2011 to the end of 2020. Cumulative relative deal value was calculated as the sum of deal value divided by market capitalization three months prior to announcement for all deals from the beginning of 2011 to the end of 2020. These metrics characterizing deal activity were then related to the TSR performance of various acquirer cohorts.