Game of unknowns for businesses in 2016
- By Nuno Fernandes
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E-mail Shanghai Daily, February 19, 2016
Mergers and acquisitions
This year promises to be a big year for mergers and acquisitions (M&As) and the end of 2015 clearly showed some very prominent deals taking place, like ABInBev and SABmiller, and Pfizer and Allergan.
But this does not necessarily mean good news for investors. In practice, more than 60 percent of M&A transactions destroy value. In addition, on some very visible deals, numerous anti-trust issues need to be overcome, and will involve significant divestitures in some markets.
There are a few rules companies can follow to improve their odds of succeeding. The synergies created by mergers have to be enough to justify the combination of two companies, and to create value.
Post-merger integration should focus on the items that most justify the agreed transaction price and potential value creation for shareholders in the long run.
One of the most common mistakes in M&As is to dissociate the deal phase from the post-merger period, which explains why so many deals fail to create value.
For instance, business units or divisions should not be allowed to define the integration approach in isolation after the deal is concluded. The post-merger process has to begin with rigorous pre-merger planning.
In 2016 we will see more emerging-market multinationals buying assets and companies in Europe. Chinese investors already have sizable stakes in carmaker Peugeot, the Weetabix breakfast cereal, and the Thames Water utility in the UK, for example. In Portugal, Chinese investment accounts for nearly 40 percent of the money raised via privatizations over the past four years.
And non-European sponsors are increasingly prominent on team shirts in Champions League football in Europe.
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