Bangkok Post

Mergers and acquisitions coming of age

M&A can deliver great value if well-conceived and properly executed.

By Sharad Apte, Satish Shankar and Suvir Varma

Published on April 12, 2013
min read


This article originally appeared in the Bangkok Post. In 2012, Thai companies jump-started the country's long-sluggish merger and acquisition market, seizing opportunities to use acquisitions as a way to spur growth. A surging stock market and increased political calm encouraged a record US$27 billion in spending overseas, making Thailand the third-ranked Asian country for outbound deal volume. Two major deals by Thai billionaire Charoen Sirivadhanabhakdi show why mergers and acquisitions are an increasingly popular choice for companies struggling to grow organically or to expand overseas. In 2011, ThaiBev, a Charoen-controlled brewery, purchased the soft-drink maker Serm Suk Plc for 15.4 billion baht ($512.6 million), reshaping the playing field for the Thai beverage market. Charoen then staged an aggressive $11.2 billion takeover of Fraser and Neave, the Singapore property, soft drinks and publishing giant. The deal provides ThaiBev with a shortcut to the top of Asia's huge beverage market. These deals, along with others such as state-owned PTT's $1.2-billion bid for Cove Energy's gas assets in Mozambique and an increased stake in the coal company Sakari Resources demonstrate the resurgence of M&A. M&A can deliver great value if well-conceived and properly executed. In fact, a recent Bain & Company study of more than 1,600 companies found that M&A was an essential part of successful strategies for growth over the past decade. The most successful acquirers are those with a repeatable model: The group of companies that built their growth on M&A — those that acquired frequently and at a material level — recorded annual total shareholder returns that were nearly two percentage points higher than the average. But M&A 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 build a capability for repeatable success that includes five elements. First, successful acquirers understand their strategy and create an M&A plan that reinforces that strategy. The strategy provides the logic for identifying target companies. For example, some of the best acquirers use M&A to build leadership positions in 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. These companies typically have clear guidelines for deal frequency, size, timing, and level of ownership. Consider the approach taken by Thai Union Frozen Products (TUF), Thailand's largest canned and frozen-seafood producer. TUF's well-honed acquisition strategy has fueled its expansion from a modest contract tuna packer to the world's largest tuna canner. Its international acquisitions have provided TUF with access to key markets, especially in the US and Europe. By the end of 2011, TUF's overseas sales accounted for more than 90% of its revenue, largely fuelled by its international acquisitions. Second, they develop a deal thesis based on that strategy for every transaction. The thesis spells out how the deal will add value both to the target and acquiring company. In China, the use of a deal thesis has been critical to the success of China Resources Snow Breweries (CRB), which has completed dozens of regional brewery acquisitions on a path that has made Snow the world's No. 1 beer brand by volume. Third, they conduct thorough, data-based due diligence to test their deal thesis, including a hard-nosed look at the price of the business they are considering. One successful Singapore-based acquirer has a six-member core M&A deal team that works hand-in-hand with business unit leaders through every stage of an acquisition, including performing due diligence that asks and answers the big questions that will drive most of the business value. Fourth, successful acquirers plan carefully for merger integration. They determine what must be integrated and what can be kept separate, based on where they expect value to be created. Finally, they mobilise to capture value, quickly nailing the short list of must-get-right actions and effectively executing the much longer list of broader integration tasks while keeping a strict focus on value creation. Following a merger, a Southeast Asian retailer knew it could build value by closing the most unprofitable retail operations and focusing on two core markets, Singapore and Malaysia. It generated synergies by renegotiating volume discounts with suppliers. And it addressed people issues that could threaten a successful integration. The retailer grew revenues by 15% a year three years after its purchase, three times the market growth rate, and added 13 percentage points to its margins in four years. A repeatable model for M&A that includes these five elements and is enabled by an institutionalised M&A capability will separate the companies that profit from Southeast Asia's growing M&A marketplace from those that are left behind. Sharad Apte is a partner with Bain & Company and heads the firm's office in Thailand. Satish Shankar is a partner based in Singapore and the Asia head of Bain's M&A Practice. Suvir Varma is a partner based in Singapore and the Asia Head of Bain's Financial Investor Practice.

This article originally appeared in the Bangkok Post.

In 2012, Thai companies jump-started the country's long-sluggish merger and acquisition market, seizing opportunities to use acquisitions as a way to spur growth. A surging stock market and increased political calm encouraged a record US$27 billion in spending overseas, making Thailand the third-ranked Asian country for outbound deal volume.

Two major deals by Thai billionaire Charoen Sirivadhanabhakdi show why mergers and acquisitions are an increasingly popular choice for companies struggling to grow organically or to expand overseas. In 2011, ThaiBev, a Charoen-controlled brewery, purchased the soft-drink maker Serm Suk Plc for 15.4 billion baht ($512.6 million), reshaping the playing field for the Thai beverage market.

Charoen then staged an aggressive $11.2 billion takeover of Fraser and Neave, the Singapore property, soft drinks and publishing giant. The deal provides ThaiBev with a shortcut to the top of Asia's huge beverage market. These deals, along with others such as state-owned PTT's $1.2-billion bid for Cove Energy's gas assets in Mozambique and an increased stake in the coal company Sakari Resources demonstrate the resurgence of M&A.

M&A can deliver great value if well-conceived and properly executed. In fact, a recent Bain & Company study of more than 1,600 companies found that M&A was an essential part of successful strategies for growth over the past decade. The most successful acquirers are those with a repeatable model: The group of companies that built their growth on M&A — those that acquired frequently and at a material level — recorded annual total shareholder returns that were nearly two percentage points higher than the average.

But M&A 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 build a capability for repeatable success that includes five elements.

First, successful acquirers understand their strategy and create an M&A plan that reinforces that strategy. The strategy provides the logic for identifying target companies. For example, some of the best acquirers use M&A to build leadership positions in 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. These companies typically have clear guidelines for deal frequency, size, timing, and level of ownership.

Consider the approach taken by Thai Union Frozen Products (TUF), Thailand's largest canned and frozen-seafood producer. TUF's well-honed acquisition strategy has fueled its expansion from a modest contract tuna packer to the world's largest tuna canner. Its international acquisitions have provided TUF with access to key markets, especially in the US and Europe. By the end of 2011, TUF's overseas sales accounted for more than 90% of its revenue, largely fuelled by its international acquisitions.

Second, they develop a deal thesis based on that strategy for every transaction. The thesis spells out how the deal will add value both to the target and acquiring company. In China, the use of a deal thesis has been critical to the success of China Resources Snow Breweries (CRB), which has completed dozens of regional brewery acquisitions on a path that has made Snow the world's No. 1 beer brand by volume.

Third, they conduct thorough, data-based due diligence to test their deal thesis, including a hard-nosed look at the price of the business they are considering. One successful Singapore-based acquirer has a six-member core M&A deal team that works hand-in-hand with business unit leaders through every stage of an acquisition, including performing due diligence that asks and answers the big questions that will drive most of the business value.

Fourth, successful acquirers plan carefully for merger integration. They determine what must be integrated and what can be kept separate, based on where they expect value to be created.

Finally, they mobilise to capture value, quickly nailing the short list of must-get-right actions and effectively executing the much longer list of broader integration tasks while keeping a strict focus on value creation. Following a merger, a Southeast Asian retailer knew it could build value by closing the most unprofitable retail operations and focusing on two core markets, Singapore and Malaysia. It generated synergies by renegotiating volume discounts with suppliers. And it addressed people issues that could threaten a successful integration. The retailer grew revenues by 15% a year three years after its purchase, three times the market growth rate, and added 13 percentage points to its margins in four years.

A repeatable model for M&A that includes these five elements and is enabled by an institutionalised M&A capability will separate the companies that profit from Southeast Asia's growing M&A marketplace from those that are left behind.

Sharad Apte is a partner with Bain & Company and heads the firm's office in Thailand. Satish Shankar is a partner based in Singapore and the Asia head of Bain's M&A Practice. Suvir Varma is a partner based in Singapore and the Asia Head of Bain's Financial Investor Practice.