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For the first time, scope deals are outperforming scale deals in M&A. This means it's time for companies to rethink their strategies and invest in the future. Peter Horsley, a partner with Bain's Mergers & Acquisitions practice, discusses how the most successful acquirers update their playbooks to outperform the competition.
Read the Bain Report: Using M&A to Ride the Tide of Disruption
Read the transcript below.
PETER HORSLEY: The latest Bain analysis of 1,000 deals over $1 billion over the last four years shows that, for the first time, scope deals—deals that we do for growth through new markets, new products or new capabilities—outnumber scale deals that we do for synergies or industry consolidation. All this within an environment of increased regulatory and investor scrutiny. This is profound. It means we need to rethink the way that we think about strategic framing, diligence, integration and management of those combined companies.
Like most things in life, the more you do of them, the better you get. So it is with M&A. And we see frequent acquirers outperforming the average company on TSR. And the best of them are updating their playbooks in three areas.
Firstly, in diligence. They're getting broader than the traditional strategic and synergy assessment. They're looking at operational factors, like systems compatibility. They're looking at capabilities, they're looking at talent, they're looking at regulatory factors like data privacy. And they're creatively using the new data and tools that are available today to get a robust "outside-in" of what consumers and employees are thinking.
And they're tailoring the diligence they're doing to the deal type. So for scope deals where the premiums are higher but the cost synergies are lower, they're being much more forward looking, looking at revenue synergies, looking at future option values, often in industries and companies they don't understand today.
Secondly, they're thinking about operating model in a different way. Historically, it was often enough to use the acquirer's operating model and drive out the synergies from there. Today, we see companies thinking hard about how to create future value. So in scale deals, we're seeing large incumbents in disruptive industries using M&A as an opportunity to transform their business models to be fit for the future. In scope deals where there are real pitfalls to over- and under-integration, we're seeing companies think hard about where to integrate and where not to integrate, to allow the companies to work together without sacrificing the precious decision velocity, talent and culture of the acquired company.
Thirdly, the integration of processes and systems is becoming a differentiator. It allows you to get to deal synergies faster, lower running costs, and set the company up for future transformation and operating model change. It requires speed, it requires talent, it requires the right budget, and that can be tricky when you're trying to balance the needs of the integration and the needs of existing day-to-day initiatives. It needs planning in advance. And the truth is that once the deal is done, it can be too late.
So overall, we're seeing successful acquirers understand these changes and update their playbooks across diligence, across operating model and across integration to outperform their competition.
M&Aレポート2019 Vol.1：破壊的変化の波が押し寄せる中でも成長するためのM＆A
Bain’s review of 2018 examines the changing role of M&A in a year of uncertainty and growth challenges.
First published in 1月 2019