AFR Capital Magazine

Four traits of M&A success

M&A winners share four traits, which separate the companies that profit from Asia's growing M&A marketplace from those that are left behind.

By Satish Shankar, Suvir Varma and Simon Henderson

Published on November 15, 2012
min read


Merger and acquisition activity across the Asia-Pacific region has staged a strong recovery from the 2008 financial crisis, buoyed by powerful economic growth, strong corporate profits and government deregulation. The value of M&A deals grew 18 per cent in 2010 and 4 per cent in 2011, despite macro-economic uncertainties such as the sovereign debt crisis. While activity has dropped for the first three quarters of 2012, there are signs of a pick-up and the popular view is that 2013 will be a better year than 2012. M&A can deliver great value if well-conceived and properly executed, but it is an area where only companies that have carefully built up the required M&A capabilities and experience routinely succeed. We've found that M&A winners share four traits. The first is a M&A strategy linked to the company's overarching growth strategy. Olam International, a Singapore-based food and agricultural products company, uses M&A to build leadership positions in its existing businesses, expand into adjacent businesses, overcome entry barriers in new markets, acquire new capabilities, and take advantage of favourably priced targets with high business overlap. It has clear guidelines for deal frequency, size, timing, and level of ownership. The second trait is the institutionalisation of M&A process, policy and people to ensure discipline and focus. Olam has a six-member core M&A deal team that works hand-in-hand with business unit leaders through every stage of an acquisition. The team creates a detailed investment thesis and performs due diligence, asking and answering the big questions that will drive most of the business value—a step that dictates integration priorities. The third essential ingredient is a focus on value creation, tight process control, and quick resolution of people issues. A south-east Asian retailer closed the most unprofitable retail operations and focused on two core markets, Singapore and Malaysia. It created synergies by renegotiating volume discounts with suppliers. And it addressed people issues that could threaten a successful integration. The retailer expanded revenue by 15 per cent a year three years after its purchase, three times the market growth rate, and added 13 percentage points to its margins in four years. The fourth characteristic: persistence. In a recent Bain study analysing 1615 companies and more than 18,000 deals between 2000 and 2010, we found that frequent acquirers generate superior annual excess returns—on average 1.4 times higher than those of infrequent acquirers and more than double the excess returns of companies not active in M&A. These four traits will separate the companies that profit from Asia's growing M&A marketplace from those that are left behind. Satish Shankar and Suvir Varma are Bain & Company partners in the firm's Singapore office. Simon Henderson is a Bain & Company partner in the firm's Sydney office.

Merger and acquisition activity across the Asia-Pacific region has staged a strong recovery from the 2008 financial crisis, buoyed by powerful economic growth, strong corporate profits and government deregulation.

The value of M&A deals grew 18 per cent in 2010 and 4 per cent in 2011, despite macro-economic uncertainties such as the sovereign debt crisis. While activity has dropped for the first three quarters of 2012, there are signs of a pick-up and the popular view is that 2013 will be a better year than 2012.

M&A can deliver great value if well-conceived and properly executed, but it is an area where only companies that have carefully built up the required M&A capabilities and experience routinely succeed.

We've found that M&A winners share four traits. The first is a M&A strategy linked to the company's overarching growth strategy. Olam International, a Singapore-based food and agricultural products company, uses M&A to build leadership positions in its existing businesses, expand into adjacent businesses, overcome entry barriers in new markets, acquire new capabilities, and take advantage of favourably priced targets with high business overlap. It has clear guidelines for deal frequency, size, timing, and level of ownership.

The second trait is the institutionalisation of M&A process, policy and people to ensure discipline and focus. Olam has a six-member core M&A deal team that works hand-in-hand with business unit leaders through every stage of an acquisition. The team creates a detailed investment thesis and performs due diligence, asking and answering the big questions that will drive most of the business value—a step that dictates integration priorities.

The third essential ingredient is a focus on value creation, tight process control, and quick resolution of people issues. A south-east Asian retailer closed the most unprofitable retail operations and focused on two core markets, Singapore and Malaysia. It created synergies by renegotiating volume discounts with suppliers. And it addressed people issues that could threaten a successful integration. The retailer expanded revenue by 15 per cent a year three years after its purchase, three times the market growth rate, and added 13 percentage points to its margins in four years.

The fourth characteristic: persistence. In a recent Bain study analysing 1615 companies and more than 18,000 deals between 2000 and 2010, we found that frequent acquirers generate superior annual excess returns—on average 1.4 times higher than those of infrequent acquirers and more than double the excess returns of companies not active in M&A.

These four traits will separate the companies that profit from Asia's growing M&A marketplace from those that are left behind.

Satish Shankar and Suvir Varma are Bain & Company partners in the firm's Singapore office. Simon Henderson is a Bain & Company partner in the firm's Sydney office.