In Mergers & Acquisitions practice makes perfect

In Mergers & Acquisitions practice makes perfect

Thailand's economy expanded by a meagre 1.5% in 2011, according to many estimates, after manufacturing production disruptions from the floods reduced exports significantly in the year's final quarter. This year the government expects growth of more than 5% as initiatives to recover from the floods and other stimulus measures take effect.

While it may take time for many businesses to recover from the floods, this will offer a good opportunity for companies looking for merger and acquisition targets both in and outside of the country. Evidence shows that deals arranged during a downturn produce substantially higher long-term returns than transactions executed during economic good times.

Moreover, while M&A activity in Southeast Asia is on the increase across the region, Thailand has lagged. Over the last four years, companies based in Malaysia and Singapore have collectively led 78% of Southeast Asia's $52 billion worth of M&A deals. Thailand, at 11%, is punching well below its weight and is at risk of missing the big opportunities. We believe that for Thai companies, now may be the ideal time for an M&A-led strategy.

However, success in M&A varies quite a bit. Analysis carried out by The Boston Consulting Group (BCG) provides fresh insights into the patterns and behaviours of the world's most successful acquirers. The study reveals that companies that undertake only a limited number of transactions do relatively poorly at M&A. Serial acquirers do the best. They excel on multiple fronts. First, they excel at timing their transactions. Specifically, we found that serial acquirers, compared with single acquirers, do a higher proportion of their deals at the start of an M&A wave, when deal premiums are low and the choice of targets is greatest. Second and perhaps most important, practice strengthens organisation dealmaking capabilities over time. Practice makes perfect.

The study indicates serial acquirers produce superior returns when they focus on four types of targets and when they time their deals at the right moment.

Target distressed businesses. The experience of serial acquirers gives them a particularly strong edge when buying distressed assets. Although all acquisitions are complex, especially during the critical post-merger integration stage, purchasing a distressed business makes the exercise much more complex because there is often an urgent need to restructure the target, as well as limited access to information during the due diligence process.

Serial acquirers appear to excel at turning this complexity into value. On average, their returns from distressed assets are higher than those of single acquirers. In fact, top-quartile serial acquirers produce substantially higher returns than top-quartile single acquirers when they concentrate on distressed targets instead of on healthy businesses. Targeting distressed assets also enables buyers to enjoy lower deal premiums and less competition for these targets.

Keep transactions relatively small. As noted earlier, serial acquirers mainly target businesses with significantly smaller sales than their own, enabling them to limit their risks and build up knowledge and experience as they go along. This concentration on relatively small targets produces substantially higher returns. The performance difference between small transactions and very large transactions for serial acquirers is greater than the difference in returns between small and large deals for single acquirers.

Concentrate on private companies. While keeping transactions relatively small offers one of the most promising routes to successful M&A, targeting private companies gives serial acquirers a further competitive advantage. Privately owned targets are not only less liquid, which can often result in lower prices, they also require a different due-diligence process from that applied to publicly listed companies. In addition, they demand different negotiation skills and, frequently, different industry expertise. This specialised knowledge is quite rare and can usually be developed only through the serial experience of an industrial buyer, limiting the competition for private targets.

Search for targets on other continents. Serial acquirers seem to thrive in any situation that other companies consider too complex or too far outside their normal experience, including intercontinental M&A. Although serial and single acquirers do similar proportions of intercontinental deals, capital markets reward serial acquirers with three times higher returns for global acquisitions than for local acquisitions, reflecting investors' confidence in their ability to manage geographic complexity.

Ask yourself: Is now the right time? Regardless of whether the target is small or private, distressed or located on another continent, timing is one of the most critical factors in any M&A deal. And here serial acquirers excel, providing valuable lessons for all acquirers.

Generally, serial acquirers execute a significantly larger proportion of their M&A in low-premium environments than do single acquirers, enabling them to retain a bigger share of the deals' synergies and strengthen capabilities.

Specifically, serial acquirers are particularly adept at entering the M&A market at two optimal moments: at the start of an industry M&A wave and just before an upturn, which may coincide with the start of a wave. With the effects of the worst floods in decades abating, 2012 will likely be a very good year for serial acquirers in Thailand.

Tongjai Thanachanan is a partner and managing director and head of BCG's Bangkok office. Pilasinee Kittikachorn and Tunnee Sinburimsit are project leaders based in Bangkok. The Boston Consulting Group (BCG) is a leading management consulting firm with 72 offices globally and 200 professionals based in Southeast Asia. For more information, contact

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