International M&A in the post-epidemic era should start from five dimensions

Bain & Company recently released the "Global M&A Market Report 2021". The report predicts that this year, the global M&A market is expected to continue to heat up, and will show an increasingly urgent need for asset divestitures, "double growth" of scope and size deals, supply chain localization and other trends.

According to Bain & Company's survey, the need for divestitures is increasing. With increasing uncertainty and the need for companies to invest scarce resources in the best opportunities, the urgency of divestitures is increasing. About 40 per cent of executives expect divestitures to increase in the coming year. Among them, retail, energy and hotel and other industries especially.

To be stripped assets, many buyers also showed a strong acquisition intention. About 62% of the surveyed practitioners said they would be more interested in acquiring spin-off assets in related industries in the coming year. Thirty percent of respondents said private equity interest in divesting assets is growing, with advanced manufacturing expected to see the biggest increase.

In addition, the Bain report notes an increasing proportion of range deals -- to help companies enter fast-growing markets or gain new capabilities such as technology and digital capabilities. Range trades accounted for 41 percent of the $1 billion-plus deals in 2015, and by 2020, that figure had climbed to 56 percent. Specifically, the technology, consumer goods and healthcare sectors accounted for the largest share of the range transactions. Many scoping deals focus on acquiring new core competencies. In terms of scale, there will be more consolidation in sectors such as traditional media and retail.

According to data released by Bain & Company, local and regional deals increased globally in 2020, while cross-regional mergers and acquisitions decreased. Overseas deals by Asian companies in the Americas and Europe were down 29 per cent year on year. About 60% of respondents believe that supply chain localization will be one of the key factors in evaluating future deals. The COVID-19 outbreak has severely impacted global supply chains and may continue to drive these trends.

According to statistics, global enterprises signed more than 28,500 M&A agreements in 2020, with a total transaction value of 2.8 trillion US dollars. The number of agreements and the total value of deals are down 11 per cent and 15 per cent respectively from 2019. Behind the numbers is a roller-coaster ride that the global M&A market experienced last year. Global M&A activity nearly ground to a halt in early 2020 due to the COVID-19 outbreak, only to rebound in the second half of the year. In both the third and fourth quarters of 2020, the value of global M&A transactions increased by more than 30%. The median transaction multiple (enterprise value/EBITDA) rose to 14 times from 13 times in 2019, helped by fast-growing sectors such as tech, telecom, digital media and pharmaceuticals.

Bain believes that global M&A momentum will remain strong in 2021 and will be an important pillar of corporate strategy. About 50% of the executives surveyed expect M&A activity in their industries to increase in 2021. In the next three years, mergers and acquisitions will account for 45 percent of its corporate growth, compared with 31 percent in the past three years.

To this end, Bain & Company suggests that M&A traders should develop M&A strategies from five dimensions: First, reevaluate the matching degree between M&A strategy and the overall strategy of the company. As the business model and external ecological environment are constantly changing, enterprises are reshaping the top-level strategic blueprint. At this time, the merger and acquisition strategy should keep pace with The Times, and the acquirer should consider and make clear whether to improve the overall strength through acquisition or self-establishment. The second is to embrace the emerging M&A approaches. Leading companies create high quality investment value through joint ventures, partnerships (with and without equity, capital and non-capital), and corporate venture capital, based on different types of transactions. Third, integrate into the industry experience as soon as possible. When enterprises determine the scope of mergers and acquisitions and the capabilities they want to acquire, they should incorporate industry experience into the process of mergers and acquisitions as soon as possible. For example, outside industry experts can be brought in during the due diligence phase. Fourth, insight into the market, rapid layout. Instead of passively waiting for investment banks to come to us, merger and acquisition competition in the industry has become increasingly severe. In this regard, enterprises should have a real-time insight into the market dynamics of their industry, and establish good cooperative relationships with various ecological partners (such as investment banks, tax and legal advisory agencies), so as to seize the fleeting investment opportunities. Fifth, extend the investigation Angle. The value and sources of risk in range trades are often difficult to predict. In practice, enterprises can extend the survey perspective to include corporate culture, sustainability, consumer segmentation, etc.