Disney’s acquisition of 21st Century Fox means that the House of Mouse now controls a huge amount of our most beloved films and television series.

Announced in December 2017 and expected to take until at least 2021 to complete, this $66.1bn deal (that included taking on a sizeable debt portfolio from Fox) ranks amongst the largest mergers of its kind in history.

We’ve compared these media giants, looked at the potential impact of the deal on both their own employees and the end user and demonstrated how Disney is looking to leverage this deal to break into new markets.

Read on to see how the merger will affect everything from television and the cinema box office to streaming platforms and sports broadcasting with our comprehensive infographic:

(Source: ABC FINANCE LTD)

In good times and bad, M&A remains one of the best ways to get ahead of the competition and increase opportunities – and returns – for businesses. It also represents an immense commercial activity that drives significant macroeconomic value across the globe. But why are still so bad at it? Below Finance Monthly hears from Carlos Keener, Founding Partner at BTD Consulting, on M&A tactics and the value in improving on our own.

Even during the ‘Great Recession’ of the last decade, the worst since the 1930s, the poorest year for M&A saw over 35,000 global deals representing $2.25tn – equivalent to more than 3% of global GDP. M&A impacts national economies, individual businesses, and everyone involved.

Yet far too many deals still fail to achieve their objectives. By most measures, long-term M&A success rates remain very low compared to other growth or investment activities. Underneath many celebrated cases of outright merger collapse lies a general prevalence of underperformance, one that has remained unchanged in over 30 years. An Accenture report, Who says M&A doesn’t create value, published in 2012, actually celebrated the view that as many as 58% of all acquisitions added shareholder value 24 months post-close. Problem solved? We think not.

We do not believe such figures deserve the complacent optimism they receive. If you ‘play the M&A odds’ and do no better than your peers, your business is likely to be walking away from approximately half of a percent of its enterprise value with every single deal. That could easily add up to millions if not tens of millions of pounds.

Even so, this is about more than just the numbers. Underperforming acquisitions damage shareholders, careers, brands, communities and opportunities for companies and people alike. Executive survival in serial acquirers is notoriously short: according to one study, disciplinary replacement of CEOs is 77% higher than in non-acquisitive companies.

This endemic level of failure rarely prompts serious remedial action or increased rigour the next time there’s an M&A opportunity. The reason stems from the unique ‘gain today, pain tomorrow’ nature of deal-doing which can be typified by a few characteristics such as:

• Not a perfect world: Business is inherently risky, and M&A especially so. When that is the world view, some failure is simply seen as ‘coming with the territory’.
• Not today’s problem: The long-term outcomes of most deals, regardless of whether they are good or bad, are usually only apparent years later. But corporate, board and investor attention spans are short.
• Not my fault: Outside corporate management, it’s nobody’s job to care about the long term. Regulatory bodies focus on potential competitive impact, not the likelihood of deal success. Traditional external deal advisers are not interested in or responsible for what happens post-close. Shareholders and boards are too far removed from the detail to constructively influence deal decisions. New executives are always keen to draw a line between them and any past errors.

Studies of M&A and integration best practice are widespread and largely focus on tangible, concrete ways to improve individual steps along the process. They might advocate more due diligence, earlier integration planning, increased focus on culture or better communications. These can certainly help individual cases, and yet overall levels of M&A success remain largely unchanged. Best practice is available, understood, widely applied, and yet it is clearly insufficient.

Our own experience and research suggests that success rates are stuck because in most cases both organisations and the external groups that support them fail to understand and grapple with the leadership behaviours that really underpin M&A performance. These behaviours embody the culture, mindset, motivations and actions necessary for sustained success. Our detailed research report Inconvenient Truths identifies 10 critical leadership behaviours both pre- and post-close that impact M&A performance. Here are three of the ten to consider before embarking on your next deal:

1. Avoid anything that generates deal fever: Over 90% of professionals surveyed believe deal fever has a significant, if not critical, impact on M&A performance - and we don’t mean a positive impact. Does your M&A process consistently eliminate the personal agenda, and discourage equating ‘deal doing’ with ‘deal success’? Ensure you have a clear understanding of the motivations – hard and soft – of the deal team from the outset.
2. Minimise the influence of politics and egos in rational, objective deal debate: This is easy to say, but difficult to implement. In our study, 90% of executives at least occasionally withheld objections to a deal where there is widespread group support for proceeding. And 29% do this most of the time if not always. It is critical to use your deal process and your influence at the top table to set the right tone. This means building an environment for open, constructive debate, allowing everyone around the room to have a valid voice, and preventing any one individual from dominating the discussion.
3. Ensure those doing the deal are accountable for delivering its benefits: As one Corporate Finance VP told us, “Getting the deal done is all we do; integration isn’t really of interest to us.” But without this, the pre-deal team will typically only have a passing interest in whether benefits are realised, while the post-deal business may not support the deal from Day 1. Making sure the group assessing a potential deal includes those who must make it work in the long term is key, as is giving the executive responsible for post-close success the ability to veto the deal itself.

All of this might seem obvious. But these points are rarely tackled head-on, and in part that’s because they can by difficult to address. A strong, robust M&A process can help encourage these ‘good behaviours’, or at the very least highlight when they’re not being followed. Those who think this might not be worth the pain and effort might want to know that according to our study, leaders who successfully follow our 10 ‘good habits’ consistently see M&A deliver long-term benefit 72% of the time. That is more than four times more than those who don’t follow the habits. They also saw an increase in share price of 46% over the three years of our study, which is more than twice that of their ‘badly-behaving’ peers.

Agave Partners is a cross-border investment bank specializing in the access to the Chinese market for innovative product companies in such domains as Semiconductors, Telecommunications, Data Centres, Artificial Intelligence, Robotics, Automotive and Avionics.

With offices in San Francisco, Beijing and Chicago, Agave Partners represent US and European companies interested in developing strategic partnerships in China for their commercial development and for restructuring their capital. The company realizes Corporate Financing and M&A transactions.  

Agave’s ability to source the right strategic partners in China is in their unique blend of banking and operational experiences allowing to align corporate strategies and structure transactions beyond the aptitude of traditional investment banks. Founder and Managing Director Robert Troy tells CEO Today more about it.

Could you tell us a bit about Agave Partners’ M&A practice?

Our M&A practice focuses on mid-market US and European innovative companies, to which we provide our expertise in identifying Chinese industrial groups able to acquire companies whose offering fits the domestic needs.

Our unique positioning in this practice comes from the combination of our effective presence in China with an office in Beijing dedicated to developing strategic relationships with large industrial and private equity groups, and our expertise in technologies at the core of capital-incentive domains that align with the strategic roadmap of these groups.

These are critical ingredients to maximize the outcome of a deal that is beneficial to both parties, while efficiently navigating through the multiple hurdles, be they administrative, financial, or cultural.

Can you detail a recent transaction that Agave Partners advised on? What were some of the issues that you were faced with?

Agave Partners Advisors was mandated by Kalray SA to source a strategic partner in China with interest in using Kalray technology in its application domain and interest in investing in the company.

We prospected industrial groups that we know to be innovation hungry in highly competitive segments of the Chinese market, including data centres, avionics and automotive; searching for a company which can get a strong strategic advantage at adopting Kalray technology for serving its clients.

Because Kalray technology is very advanced, we found various industrial groups in China, among the most sophisticated, curious about it and genuinely interested in discovering how this technology can be put into practice in their product lines; how it offers a discriminant competitive advantage in better serving their clients; and questioning how fast the market can adopt.

On the buyer’s side, we were confronted to the challenge of promoting a disruptive technology and navigating the full cycle of technology assessment in situations involving product designs and many other steps driving to the strategic decision. Our blend of technologists and bankers’ expertise happened to be of critical importance.

On the seller side, we enjoyed a high-level cooperation with an agile client, not short of commitments when extensive travels and endless negotiations were required to match interests, assess the risks, commit on future developments and overall demonstrate a willingness to engage in a powerful but controlled relationship. Our key contributions have of course been to assist in structuring a complex deal negotiated by parties which were not even speaking the same language and belonging to extremely different business cultures. Our multicultural team made of people used to work and deal in Europe, the US and Asia has certainly been the second key factor of success.

What do you think the next 12-24 months hold for the global M&A market?

Antagonist forces are shaping the global technology market. We see growing altogether (i) a renewed interest of corporations for technology innovations, (ii) a levelling of industrial capacities between continents, (iii) a global awareness of not-to-miss massive game-changer disruptions on their reach to maturity in a variety of application domains including but not limited to automotive, robotics, avionics or healthcare, (iv) the adoption by entrepreneurs and CEOs of worldwide reach as a new normal.  We also see necessary geopolitics considerations creating a growing level of uncertainties with high potential for delaying the trend toward a global reach.

This push-pull situation makes it extremely difficult to predict what the future might hold, but in the short term, we don’t see any possible inflexion of the growing M&A trend in the technology sector for a variety of reasons.

What are some of the current projects that Agave Partners is working on? What lies on the horizon for the firm in 2018?

Agave Partners is working for entrepreneurs and CEOs having a worldwide development strategy. As long as 2018 is concerned, we are primarily working at increasing our capacities to respond to a fast-growing deal flow of high quality companies which see China as their next frontier.

We also have the ambition to become an investor in our most promising clients. For this purpose, we recently signed an agreement with China Electronic Corporation Corporate Venture and their HDSC branch to launch a multi-corporate fund involving European and American electronic corporations as well. Agave Partners Funds is a work in progress with expectation to be launched in the spring of 2018.

Contact details:

Address: 4 Embarcadero Center, Suite 4000

San Francisco, CA 94111

Email: info@agaveph.com

Website: www.agaveph.com

By their nature, M&A transactions are challenging at the best of times - never mind during periods of political and economic uncertainty. History is littered with unsuccessful deal-making that more often than not leads to poor staff retention rates, buy side write-downs, divestment, dissolution and/or bankruptcy.

Typically, failed transactions are caused by a culmination of different issues. So what are some of the major industry pitfalls that merging parties ought to be aware of?

Lack of strategy

Believe it or not, many investors do not focus on the long term strategy associated with a merger or acquisition. The logic behind a deal is all too often side-lined for short term goals and perceptions driven by politics, ego and self-interest. In 2005 EBay’s acquisition of Skype, which left many dumbfounded, was valued at $2.6 billion. The lack of rationale behind the deal was a topic of much criticism. Four years and following an £860 million write-down, the e-commerce corporation announced the sale of over half of the telecommunications company. Although it is clear that in order to gain better insight long-term, reforms that substitute quarterly updates for more extensive financial reporting periods need to be implemented, the issue of an effective incentives system remains unsolved.

Cultural incompatibility

Disregarded for the most part, culture actually plays a big role in the success or failure of a merger. According to the Society for Human Resource Management, clashes account for more than 30% of overall failures. A particularly high profile case gone awry was AOL’s merger with Time Warner in 2001 referred to subsequently by Jeff Bewkes as ‘the biggest mistake in corporate history’.

The deal which equated to a $99 billion loss and led to the eventual divorce of the conglomerate in 2009, caused numerous job losses, retirement plans, workplace disruptions and probes by the SEC and Justice Department over the eight year period.

Although there are a number of variables outside of a buyers’ control, a focus on realistic and applicable core values, an effective internal communications strategy and an engaged workforce can help safeguard against the worst outcomes.

Poor due diligence

Being unprepared for the due diligence phase is among the most common reasons for botched deals. M&A transactions rarely fail due to lack of knowledge however. Over half of them go pear-shaped because those involved in the deal are reluctant to confront issues head on. All areas of potential liability therefore need to be acknowledged and investigated.

Buyers are often guilty of proceeding with a deal despite the challenges they face because of the amount of time and money involved. Being prepared to call it a day if risk outweighs benefit is critical. Allocating inadequate resources during the review stage cost Bank of America $50 billion in legal fees following the acquisition of Countrywide Financial in 2008. The former, which also suffered significant reputational damage, paid the ultimate price for mistakes made by the mortgage lender.

Going about due diligence strategically in both a logical and rational way is paramount to ensure success, as is transparency. Although it may seem counterintuitive, in order to increase trust and iron out potential issues from the get go, sellers should guide buyers to areas of potential difficulty rather than wait for them to learn of the issue themselves much later on in the process, which could result in a breakdown of trust.

Not using the right tool for the job

These days the majority of transaction due diligence is carried out online and handled by virtual data rooms (VDRs) facilitating, among other things, the digitisation of documents, the automation of tasks and the streamlining of workflows.

Given the need for highly secure access to confidential documents during the due diligence phase, security should be the priority for everyone implementing a VDR. Two-factor authentication, automated encryption and a detailed rights management system that enables the administrator to grant different permissions is essential.

A VDR should allow for high-speed access to documents, high-speed batch uploads to process large volumes of documents and real time document translation given the increasingly international nature of M&A transactions.

The software should also allow all parties to conduct their due diligence in a structured and transparent manner. A clear and flexible index structure that supports document review workflows, a structured Q&A and a reporting process that creates a clear audit trail should all be sought out and secured.

About Drooms:

Drooms, Europe’s leading virtual data room provider, works with 25,000 companies around the world including leading consultancy firms, law firms, global real estate companies and corporations such as Morgan Stanley, JLL, JP Morgan, CBRE, and UBS. Over 10,000 complex transactions amounting to a total of over EUR 300 billion have been handled by the software specialist.

Although the exact start date of the financial crash will differ depending on who you talk to, August 2017 was widely acknowledged as the 10-year anniversary of the first signs of the global financial crisis. In the two years that followed, 2008 and 2009 saw the shockwaves of the crash hit the M&A industry, with global M&A volumes falling over 40%, and reported deal values by nearly 55%.

The results of the crash changed the market significantly. Companies now implement increased geographical diversification and investment strategies in secondary markets. In the UK alone, Chinese investment has tripled and US activity has grown 40% since 2014.

Ten years on from the crash, volumes are 5% higher than the 2008 peak, disclosed aggregate values are 12% higher, and the proportion of transactions with undisclosed values is higher than ever, at nearly 60%*. So what happened to the M&A market over the last decade?

Looking back: global transaction volumes

 In the year to the 31st July 2008, overall global transaction volumes fell 7.5% to 9,425 global reported deals. In the following year, they fell another 37%, to a trough of only 60% of their 2008 level (5,962 deals) as companies and investors chose to hold tight and wait out the storm. The drop resulted from lower deal values in sinking equity markets, access to financing for larger transactions and general uncertainty on the economic outlook.

The effects hit some regions harder than others in 2009. The DAX region (Germany, Austria, Switzerland) saw a 24% fall, The Iberian Peninsula (Spain and Portugal) dropped dramatically by 34% and the Nordic region was hit harder, with an abrupt 7% decline in 2008 and a further 39% decline in 2009, pushing transaction volumes 43% below their peak.  The Indochinese market followed a similar pattern with a gentler decline, with volumes growing 1.6% in 2008 (from 368 to 374), then falling by a further 22.5% in 2009.

The UK and North America, the traditional engines of transaction volume, which together accounted for around 75% of deals in 2008, saw the fastest declines. UK volumes fell 7.5% and US volumes by nearly 9%. In 2009, it was the UK market which saw the most severe contraction, as volumes fell by half, pushing transaction numbers down to 817 from 1,762 in 2007. This decline in volumes over the two-year period was significantly greater than the decline anywhere else.

The peak and the trough: Disclosed values  

Disclosed values tell a more nuanced story. The headlines looked worse, with a decline in global disclosed value of 55%. This makes sense, because smaller deals are less likely to have valuations disclosed. This is usually due to private shareholders not wanting the financial terms to be disclosed and no regulatory pressure to disclose deals below a certain threshold.

This varied by region far more than the slowdown in volumes did. For example, the US had the most abrupt decline in 2008 (down 48%) and a gentler decline in 2009 (down a further 17%, for an overall 57% reduction in reported transaction values). In contrast, the DAX region actually increased deal values in 2008, albeit by less than 1%, then saw a 44% slowdown in 2009.

The UK’s decline mirrored the DAX, but more starkly, with values declining by less than 1% in 2008 then dropping 52% in 2009. The Nordics suffered even more in value terms, as reported aggregate values dropped by nearly a quarter (24%) in 2008 and a further 72% in 2009, closing nearly 80% down on the peak.

In the year to 2007, the UK and North America accounted for 82% of global reported transaction value; in the year to 2009, despite their precipitous declines, they still accounted for 80% of global reported value.

Overall, aggregate reported deal values fell faster than transaction volumes, as larger deals which tend to be higher-risk were cancelled or delayed and, wherever possible, sellers sought to avoid disclosing the terms of transactions which may well have been concluded at lower valuations than they would have been 12 or 18 months earlier.

10 years on: a market snapshot

Ten years after these significant declines in volume and reported value, what does the landscape look like?

The North American market has increased volumes 80% from the 2009 trough, to 6,067 deals in the 12 months to 31 July 2017, while reported transaction value has surged at more than double that rate, increasing 170% from 2009 to 2017 and is now 16% above the 2007 peak. The business services and media and technology sectors remain key to US growth, together accounting for half of all inbound acquisitions, with the world’s best-developed funding environment for start-up and high-growth companies.

The DAX region shows a similar profile, with transaction volumes up 58% and values nearly doubling to 130% of their 2009 level. The Iberian Peninsula has shown gentler growth and remains below its 2007 peak. With volumes increasing 40% from 2009 to 2017, aggregate values remain 30% down on their 2007 levels while volumes. However, as the Spanish economy turns a corner, Chinese interest in the market rose markedly this year.

Indochinese volumes are up the most compared to 2007, now at 30% above their peak, while values have nearly tripled - with aggregate reported transaction values topping £100bn compared to £26bn in 2007. Transaction flow between China and Europe is expected to grow even stronger.

The Nordic region has shown the greatest growth, as volumes more than doubled from 2009 to 2017 and are now 24% above their 2007 peak, while aggregate valuations more than tripled from £14bn to £55bn, although this is still 15% down on the 2007 peak of £65bn. Chinese interest remains important in this market and American acquisitions increased quickly in the second half of 2016.

Volumes in the UK market have nearly doubled from 2009 to 2017, but remain 8% down on their 2007 peak, while reported values grew 61% from 2009 and remain 23% down.

 To infinity and beyond

 Despite the effects of the crash still reverberating through the political sphere, the market as a whole has shown itself remarkably sanguine about what would previously have been considered major macro-political uncertainty. Political change and economic uncertainty in Europe, the unpredictable statements and actions of President Trump, and the self-imposed uncertainty caused by the Brexit vote and subsequent approach to negotiations have all had relatively little effect on the markets.

This remains a strong sellers’ market. The drive for growth from strategic acquirers has seen volumes rise steadily since the trough, and accelerate since 2011, albeit with a few bumps in the road causing short-term and temporary slowdowns.

The wall of private equity money in search of high-quality investment opportunities, combined with the influx of new investors such as debt and pension funds that are willing to make direct private equity-style investments for bond-like yields, have driven values for differentiated, market-leading businesses to compelling levels not seen for over 10 years.

The ready availability of super-cheap debt has helped fuel and finance these valuations. Owners of well-performing businesses considering their exit options may be well-advised to take advantage of these conditions, which have now surpassed the previous highs of the 2007 peak in most markets.

*  Livingstone Global Acquirer report H2 2016 http://livingstonepartners.com/wp-content/uploads/2017/03/Global-Acquirer-Trends.Digital.pdf

D: +44 (0)20 7484 4731  l  M: +44 (0)7903 161330

15 Adam Street, London WC2N 6RJ

http://livingstonepartners.com/uk/

Alumnus of Wharton School (General Management) and The Doon School (India’s top School), Business Advisor by profession, and mountaineer at heart, Suraj Nangia strongly believes in living life off the edge, he has climbed 4 out of the seven summits - Mt. Kilimanjaro (Africa), Mt. Elbrus (Europe), Mt. Aconcagua (South America), Mt. Kosciuszko (Australia) and Mt. Cook (New Zeeland).

A true sports enthusiast, he is national swimmer and participated in India’s Longest race (19 km) in 2001 and ranked 24/150, played state cricket and represented U-19 for Delhi, represented State U-15 & U-17 in Squash.

Salsa is the flavour of his life and lets him connect to his soul. He was a salsa dance instructor at Salsa India between 2007 and 2015, still manages to attend salsa nights to keep his feet moving.

He has all the prerequisite to be a successful entrepreneur - a risk taker, somebody who can persevere through all odds, one who has an in depth knowledge of the domain, somebody privy to the burning needs of an industry, one who constantly strives to achieve more.

Second in command of a 220 + professionals firm, Nangia & Co. LLP, a consultancy firm that offers 360 degree services to clients across verticals, helping its clients with India Entry Strategy, Handling complex international M&A Matters, corporate taxation, professional taxation, international taxation, indirect taxation, transfer pricing, litigation support, corporate governance, risk advisory, IFRS services, corporate financial advisory and audit& assurance. Apart from leading the Tax, Compliance and M&A practice, Suraj also handles all financial matters of the firm. Foreseeing the growth opportunity owing to ‘Start-up India’, he recently established a dedicated practice catering the start-ups in India.

His zeal to never stay static and to keep moving has hugely fuelled Nangia & Co.’s growth trajectory - be it in terms of expanding to new verticals or to keeping the cycle of learning running.

What is India’s M&A growth trajectory?

M&A is the path businesses take to achieve exponential and not just linear growth and therefore continues to generate interest. The Indian M&A landscape is no different. Mergers and acquisitions have become an integral part of the Indian economy and daily headlines. Based on macroeconomic indicators, India is on a growth trajectory, with the M&A trend likely to continue.

There has been a spate of high-profile transactions in India in the last few years, whether domestic or international, and both inbound and outbound. With the government continually working towards reforms on all fronts, be it in its regulatory policies to attract foreign investors, providing an impetus to the manufacturing sector with Make in India, improving India’s Ease of Doing Business rankings, or providing solace to the much-beleaguered infrastructure sector by paving the path for real estate investment trusts (REITs)/infrastructure investment trusts (InvITs), there is no looking back.

M&A deals are likely to be the favoured route for foreign direct investment flows into India in 2017, as market consolidation is expected in sectors facing a cash crunch such as e-commerce and telecommunications. The renewable energy sector is likely to see M&A deals, but it could also attract Greenfield investments. The new insolvency and bankruptcy regime will also facilitate the sale of distressed assets, and thereby a hike in M&A activity.

What about the tax concerns that new entrants will have?

Ever since the Vodafone tax litigation took the Indian M&A landscape by storm in 2007, tax aspects surrounding any M&As in India came to the forefront—so much so that corporates have now started taking tax insurance to insulate themselves from the uncertainties and vagaries of interpretation of Indian tax laws. Of course, while the government is making strides in trying to deliver the comfort of certainty to the investor community (by issuing clarifications on various aspects of indirect transfers), it is also tightening the screws on various fronts—the renegotiation of India’s tax treaties, the looming advent of General Anti Avoidance Rules (GAAR) in 2017 and the signing of Multilateral Instrument under Base Erosion and Profit Shifting (BEPS) project.

What differentiates Nangia & Co. from its competitors?

While other firms lay emphasis on the number of resources, Nangia & Co LLP from the very beginning had decided to remain a boutique firm so as to provide personalized and competent services to clients. Having been in the industry for over 35 years, the team still consists of about 220 people who work in close quarters with the rest of their teammates. This lends a sense of openness and ownership among all the resources. Another major factor is the competency of our people who keep themselves updated with the going ons of the industry and moving ahead with the times. There is a healthy mix of domain experts who bring to the table their own expertise which helps the firm impart 360 degree services across a section of verticals.

Contact Details:

Suraj.nangia@nangia.com

www.nangia.com

By Henry Umney, CEO, ClusterSeven

 In the financial and banking sector, M&A activity is expected to be healthy, due to disposal of non-core businesses by global banks, potential relaxation of regulation in the US, and the European Central Bank encouraging cross-border diversification and consolidation for value creation.  

 Strategically, M&A offers a great opportunity to organisations, with the potential of propelling some banks and financial institutions to top positions in the industry. This said, for organisations to truly take advantage of M&A scenarios, it’s crucial that from the word go, the new entity is able to demonstrate to and convince the regulators and the market that they are agile, effective and well-managed businesses. The regulatory deadlines are stringent and carry huge non-compliance penalties, which have the potential to inflict chaos and havoc for the new entity in the market. 

Extricating businesses

Organisations involved in a M&A need to disentangle processes from their original environment to migrate them to the new entity so that the merged business is operational from day one. For instance, traders need to connect to the new entity’s systems and market data feeds on the very first day of the cross-over so that their trading activity is not compromised.

However, there are many technology-related operational challenges to divesting and merging entities, including poor IT integration, data amalgamation, compliance and regulations and the rampant use of the Microsoft Excel spreadsheet. In fact, the impact of the spreadsheet is often under-estimated, which threatens the success of these highly strategic, M&A-driven transformational initiatives.

The financial controls that are in operation in organisations are spread across multiple enterprise systems and a multitude of critical spreadsheets that span the entire business. Most organisations understand the importance of extricating the enterprise systems and connecting them to the new environment in a M&A scenario. However, there are also a number of complex, business-critical processes that reside in intricately connected spreadsheets, that organisations don’t always have visibility and indeed an understanding of. This makes securely disentangling and migrating key processes and financial controls to the new entity problematic, risky and challenging.

Ensuring timely knowledge transfer of financial controls and business processes is yet another challenge that organisations undergoing an M&A situation face. As companies amalgamate, organisations make significant cost savings through combining processes and merging personnel roles, frequently resulting in employees departing the organisation. To suitably transfer the knowledge from the acquired or merging entity, organisations need to have a full understanding of the complex critical spreadsheets that are relied upon for financial control, information on the individuals who control and manage those processes, their integrity and where they exist in the business.

Manually separating processes costly and error-ridden

In the first instance, many organisations attempt a manual approach to understanding the spreadsheet landscape and the complex interlinkages across the environment in order to extricate businesses. It rarely works – the process is complicated, time-consuming, costly in man-power, error-ridden and with stringent deadlines to provide documentary evidence to authorities, it is commonly wasted effort.

On the other hand, technology enables the merging or acquired entity to understand its business processes, identify the individuals who are applying the controls and put automation around those procedures. This also reduces the key man dependency and ensures the necessary knowledge transfer to the new organisation.

Scottish Widows Investment Partnership (SWIP) separates from Lloyds Banking Group – a case study

The disentangling of the Scottish Widows Investment Partnership (SWIP) from Lloyds Banking Group to Aberdeen Asset Management in 2014 is a prime example of the value of a technology-driven approach to M&A-led operational transformation.

Following its acquisition, SWIP needed to separate its business from Lloyds so that the necessary and critical processes could be migrated to Aberdeen Asset Management. For example, where certain processes relied on market data feeds that were owned by Lloyds, or had linkages to systems owned by Lloyds.

Due to the number of intricately spreadsheets across the vast spreadsheet landscape and the complexities of the business processes residing in this environment at SWIP, manually understanding the lay of the land was impossible. So, by utilising technology, SWIP was able to inventory the spreadsheet landscape, identify the business-critical processes, understand them and pinpoint the files that required remediation. Simultaneously, the technology helped expose the data lineage for all the individual files, clearly revealing their data sources and relationships with other spreadsheets. SWIP was able to securely migrate the relevant business processes to Aberdeen Asset Management and where necessary decommission the redundant processes.

Paying heed to role of the spreadsheet is prudent

In any M&A initiative, there is always a substantial amount of work related to complex, business-critical processes that reside in spreadsheets and the dependencies of such processes on enterprise systems and vice versa.

Technology offers a fail-safe and automated mechanism – including everything from identifying and understanding the processes, establishing the data linkages across the spreadsheet landscape through to remediation, migration and decommissioning. Teams that prudently adopt a technology-led approach to drive M&A-led operational transformation initiatives, find it extremely constructive and beneficial to the business. It mitigates the risks, minimises the disturbances that separating financial controls and processes can cause for the new entity and gives the organisation the best possible start from market, regulatory and financial standpoints.

About the author

Henry joined ClusterSeven in 2006 and for over 10 years was responsible for the commercial operations of ClusterSeven, overseeing globally all Sales and Client activity as well as Partner engagements. In July 2017, he was appointed Interim CEO and is strongly positioned to take the business forward. He brings over 20 years’ experience and expertise from the financial service and technology sectors. Prior to ClusterSeven, he held the position of sales director in Microgen, London and various sales management positions in AFA Systems and DART, both in the UK and Asia.

Website: http://clusterseven.com/

Twitter: @ClusterSeven

According to a new whitepaper from asset management strategy consultancy Casey Quirk, a practice of Deloitte Consulting LLP, the industry is likely to experience "the largest competitive re-alignment in asset management history" through merger and acquisition activity from 2017 to 2020.

According to its new Investment Management M&A Outlook, "Skill Through Scale? The Role of M&A in a Consolidating Industry," Casey Quirk expects strong merger and acquisition activity in 2017 with a continued historic pace of deals through 2020.

Among the factors driving this brisk activity in 2017 and beyond are an aging population, affecting industry asset levels and flows, as well as a broad shift to passive management that has created pressure on industry fees and placed greater value on firms with valuable distribution platforms and those investing in technology. Forty-four deals took place in the first quarter of 2017, and Casey Quirk expects 2017's volume to likely outpace the last two years.

"Investment management has become a fiercely competitive industry, increasingly shaped by the same winner-take-all dynamics influencing other maturing financial services sectors," said Ben Phillips, a principal and investment management lead strategist with Casey Quirk and one of the authors. "Amid this challenged marketplace, the gap is widening between leading and lagging asset and wealth management firms. Unlike deals of the past, consolidation pressures, with a focus on scale, will likely drive the next round of M&A activity to position firms for growth."

According to Casey Quirk, most of the investment management merger and acquisition deals in 2017 and in the next few years should fall in the following categories:

• Transformative scale acquisitions driven by the quest for revenue and cost synergies. These deals should be larger than in the past several years and should include more global mergers of equals.
• Capability-based transactions, mostly representing additions of innovative investment products and technology needs.
• Shifting value chain deals, with many asset managers acquiring firms that help them extend their capabilities in such areas as distribution, wealth management or advice.
• Pure consolidation deals structured to spread costs over a larger client asset base; several may take place in the US mutual fund marketplace.

"Economic pressure, distributor consolidation, the need for new capabilities, and a shifting value chain are the catalysts that are fueling M&A activity," said Masaki Noda, Deloitte Risk and Financial Advisory managing director, Deloitte & Touche LLP, and co-author of the paper. "Asset managers are feeling pressure from many corners and are looking for ways to secure a competitive advantage. Strategic deals may be the answer."

In 2016, 133 mergers and acquisitions occurred in the asset management and wealth management industries, down slightly from 145 in 2015, but with a higher average deal value, up from $240.9 million in 2015 to $536.4 million last year. In investment management, about half of the deals rose from the need to add capabilities such as innovative investment strategies or access to new market segments. In wealth management, the vast majority of transactions—64 out of 78—resulted from consolidation, as various smaller wealth managers sought to improve profitability through economies of scale. Merger and acquisition deal volume by category is from SNL Financial, Pionline.com, Casey Quirk analysis and Deloitte analysis.

(Source: Casey Quirk)

Written by Nick Pointon, Head of M&A at SQS

In June 2015, US security regulators investigated a group of hackers, known as FIN4. The group were suspected of breaking into corporate email accounts of 100 listed companies and stealing information in relation to mergers^[1] for financial gain. Hackers are always on the lookout for opportunities to exploit vulnerable IT systems during mergers or acquisitions.

Starwood Group, an American hotel and leisure company, was the victim of a data breach in 2015 caused by malware infected point-of-sale terminals, shortly after the acquisition by Marriott Corporation had been announced. As a result of the breach, hackers gained access to customer names, payment card numbers, security codes, and expiration dates. It was later questioned whether IT systems were appropriately assessed before the acquisition was made public knowledge.

There is so much going on in the process of an acquisition or a business merger that IT systems are often neglected. This creates vulnerabilities, potentially exposing sensitive information which cyber criminals can exploit. IT teams must focus their attention on ensuring the security of existing systems before a company even considers undergoing an acquisition or merger.

Pre-acquisition technical due diligence

Technical due diligence refers to the period during which IT systems are inspected, reviewed and assessed for areas of vulnerability that need to be addressed. Organisations looking to be acquired or merge, should begin a process of technical due diligence internally before seeking interested parties. By carrying out such an internal technical due diligence, the company being acquired can be satisfied its systems are robust, secure and fit for purpose, and the acquirer’s due diligence will not expose any issues that may jeopardise the deal.

In addition to the security vulnerabilities, many organisations carry open-source licensing risks.  Open-source modules or snippets of code are commonly incorporated by developers into software to aid rapid development.  Although this open-source code is freely downloadable, it is normally subject to an open-source licence, and this licence places restrictions and obligations on what can be done with this code. Companies often have no idea what open-source code is used in their systems and any breach of licensing restrictions can be costly to fix and endanger the deal. So the internal technical due diligence should include an assessment of open-source licensing risk, allowing the company to resolve any problems in advance.

By conducting thorough technical due diligence before embarking on the process of an acquisition, organisations will have a greater appeal to interested parties and can ensure the deal will proceed smoothly. Those looking to acquire will have a clearer understanding of the technical assets for sale, with the added reassurance there won’t be any unpleasant surprises.

Yahoo recently felt the ramifications of neglecting IT systems in anticipation of the Verizon acquisition, after it was revealed earlier this year that 500 million customer email accounts were hacked. This now has the potential to affect the final deal - Verizon have issued a statement stating that the company is looking to alter the terms of the deal, as it felt Yahoo wasn’t completely transparent about the breach. This is a prime example of technical due diligence that hasn’t been thoroughly conducted and proves issues unearthed during the closing stages of an acquisition have the potential to affect the final sale price.

Pre-implementation hurdles

Once an acquisition has been agreed in principle, senior stakeholders must then address which systems are being continued and which should be decommissioned. A skilled project manager must be chosen to manage and monitor the implementation of the systems; ensuring decisions impacting the seamless integration of the acquisition are made on time.

Companies often underestimate the amount of work that goes into managing the process of an acquisition. This can result in the appointment of a project manager without the necessary skills needed to efficiently run the entire process. All too often it is assumed acquisitions only affect the financial and legal teams, when in reality it affects every department. An individual is needed with the skills to communicate across all departments and at all levels.

Post-acquisition finishing touches

The sale is agreed and personnel have merged, but it doesn’t stop there. Post-acquisition integration is a separate project in its own right and requires close engagement from senior stakeholders. Merging IT systems across companies can affect the smooth running of daily operations, exposing flaws in acquired systems likely to cause system downtime. By bringing third-party experts on-board, companies facing both pre- and post-acquisition challenges can be kept safe in the knowledge that IT systems are maintained and sensitive data is kept safe.

No matter how big or small the company or the number of employees, acquisitions are always a major upheaval. In order to allow the organisation to continue to operate efficiently both during and after the deal, it is vital the entire integration is properly planned and effectively executed.  This planning starts during due diligence by carrying out a thorough assessment of the technology and systems.  And the process continues with the execution of the integration project, which requires a skilled project manager supported by engaged stakeholders and effective communication at all levels in the new organisation.

Finance Monthly Magazine is pleased to announce that its 2016 M&A Awards edition has now been published.

Every year Finance Monthly M&A Awards recognise and celebrate the achievements of dealmakers, management teams, financiers and professional advisers who, over the 12 months, have demonstrated their deal making excellence when working on some of the most important deal across the globe.

Finance Monthly’s research department has spent the past several months carefully researching and identifying some of the most respected individuals and firms from all over the world. The process, compromising of an online vote and personal nominations, culminated in Finance Monthly’s research team collating the totals to compile a definitive list of industry leaders. All of our M&A Awards winners show an insight into the market that proves why the demand for expert dealmakers continues to increase year upon year.

Editor-in-chief, Mark Palmer commented: “The M&A process is a tried and tested formula for the growth and prosperity of a company, and yet, it is a very complex field to navigate. We are extremely proud that all of the individuals and organisations that are listed within Finance Monthly’s 2016 M&A Awards have excelled in helping companies overcome the complications that can arise during these transactions and have contributed to achieving excellent results.”

Finance Monthly would like to thank all contributors and participants in the 2016 M&A Awards. Congratulations to our winners and finalists.

To view the awards publication please visit: http://mandaawards.finance-monthly.com/

2014 proved a record year in terms of mergers and acquisitions (M&A) activity, according to data from Deloitte.

The firm stated that high M&A deal values made an emphatic return in 2014, particularly in the healthcare, TMT and consumer products sectors. In the first three quarters of 2014, companies spent US$2.5 trillion (€2.1 trillion) on M&A activities, making 2014 the best year for deals since 2007.

“The high value of deals will remain in 2015, with a cautious but steady pick-up. In 2015 I would expect to see these sectors continue to perform well, but in addition to more activity in the mining and resources sector, with speciality finance also being one to watch. By geography, the faster pace of recovery in the US over Europe will also deliver more trans-Atlantic interest in the industrial and manufacturing services,” said Paul Lupton, Head of Advisory Corporate Finance for Deloitte.

Consumer product M&A activity also saw increased activity levels in 2014. According to Deloitte, Emperado’s acquisition of Whyte & Mackay and, more recently, Yildiz’s acquisition of United Biscuits signalled the welcome return of overseas buyers making major investments in the European market. Benign credit conditions, large corporate war-chests and increased US buyer interest in Europe also point to an increase in activity levels.

Conor Cahill, Corporate Finance Partner at Deloitte, said that a number of major corporates are now re-aligning their brand portfolios and divesting non-core assets, with Reckitt Benckiser’s divestment of Ribena/Lucozade and Unilever’s disposal of its Ragu and Bertolli businesses as examples of this.

“Looking ahead, despite the easing of general commodity prices, consumer product companies continue to face pricing pressure as the intense competition between discounters and larger retailers persists. The ability to demonstrate innovation and investment will remain critical for branded goods producers to differentiate themselves from their private label counterparts,” said Mr. Cahill.