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As domestic growth slows, companies in Japan are increasingly looking to outbound M&A as a solution. Yet outbound deals frequently disappoint. Thomas Olsen, a partner with Bain’s Mergers & Acquisitions practice, maintains that companies can succeed by tailoring their approach, based on the deal type, with the goal of developing repeatable, winning models.
Read the Bain Brief: Boosting the Odds of Success for Japan's Outbound M&A
Read the transcript below.
THOMAS OLSEN: Japanese and, in fact, North Asian companies in general are increasingly looking to M&A to drive growth as domestic economies slow. Japanese companies, for example, have been increasing outbound M&A over the last three years, now making up almost half of Japanese M&A. But outbound M&A raises the degree of difficulty of M&A and its risks. We see three reasons why companies typically get it wrong: the wrong asset due to insufficient deal thesis and strategy, the wrong price due to insufficient diligence, and the wrong integration due to insufficient or incomplete integration planning and strategy.
However, there is one root cause to this, typically, in why companies have the problem. It's because they have failed to tailor their approach to the type of deal. Specifically, in outbound M&A, we think of four different types of deals that combine the differences between scope deals and scale deals and the differences between minority and majority shareholding, which is very important, especially in acquisitions into emerging Asia that have constraints.
The first one is core expansion, where it's a majority stake in a core business in a new geography. Second is adjacency expansion, which is, again, a majority shareholding, but in a new business, building on core capabilities; access or option deals, where the companies are buying a minority stake in a company primarily for access or distribution to support the core business; for example, access to a banking license or a JV partnership to distribute product. And then finally, what we call learn-to-venture deals where companies are making a minority investment in a company primarily to learn about a new business for the future.
Each one of these different types of deals requires a specific emphasis and tailoring. But in general, acquirers need to ask three questions about every deal. First, what type of deal is it? Second, what type of investment thesis do I need to evaluate this deal correctly? Third, what is the right integration approach, and what type of integration is it? Most importantly, companies need to develop the M&A capabilities and repeatable models that are up to the bigger challenges of outbound M&A.
Read the Bain Brief: Boosting the Odds of Success for Japan's Outbound M&A
First published in décembre 2016