There are two critical factors in the formula for completing a successful Merger or Acquisition
process: the buyer and the seller.
In Europe, with severe ongoing issues across the macro-economy, there are many sellers, but finding
a buyer to complete the other half of this deal-making equation isn't always easy.
Merrill DataSite regularly sponsors M&A reports produced by mergermarket, which track the
most active sectors in terms of deal volumes across Europe, and while we know the volume of
transactions has been falling in 2012, for the first five months of this year there were very active
sectors and there clearly are buyers out there. Completing the most transactions were Industrials &
Chemicals (24.4% of the overall volume), Consumer (17%) and Business Services (11.3%). This means
businesses in these sectors are growing and investment is considered worthwhile. In terms of the
highest deal values, transactions in the Energy, Mining & Utilities sector are strongly leading against
all other industries.
In terms of the European geography, the highest value investments are still taking place in the UK,
Switzerland and Germany, but not far behind are the emerging markets of Central and Eastern
Europe, which account for 9.1% of the total overall value of M&A transactions in the first five
months of 2012.
Across different sectors and regions there are certainly plenty of sellers and some of them are
distressed, but that doesn't mean the assets available aren't viable and potentially valuable. With
financing hard to come by via traditional routes, (private equity, banks and capital markets) these
assets can present an excellent opportunity for the corporate buyer with a strong cash position who
can take advantage of these numerous opportunities.
Many large and mid-size Corporations have cash to invest because of their healthy balance sheets,
and they know it's a good idea to put that capital to work in the most strategic and productive way.
However, the cash that's available is a precious commodity and shareholders in particular will guard
it jealously, especially in such a volatile market. Corporate buyers need strategic options for M&A
transactions that are going to add value to their business, while not unduly risking their investment.
Strategic use of a positive balance sheet can be a way to take real advantage of prime opportunities
in the market, while getting the most value from the cash that's available.
Corporates across any sector or region may think about entering into an M&A transaction for
a variety of reasons – diversification into a new market, expansion into a different geography,
acquiring a new product line, creating synergy in their market or simply taking the opportunity to
eliminate a competitor. Whatever the reason, now could be a great time to take action if funds are
accessible, but the move needs to be carefully targeted and thought through, especially if scoping
out new acquisition opportunities isn't part of the "run of the mill" business.
Investing time, resources and capital, as well as securing stakeholder buy-in, will be difficult to justify
if the original business case for moving into an M&A process isn't solid, because ultimately it will just
put too much at risk. Clearly, management teams need to think carefully about whether the timing
is right, whether the target is right and whether their business is robust enough for the process it
will have to go through in terms of due diligence and post-merger integration should the deal close
successfully. The pressure is greater than ever to do the "right deal" Vs. doing "any deal".
Selective acquisition of the right target, in the right market is crucial, and use of technology, such
as virtual data rooms (VDR), is invaluable to corporate buyers looking for expertise to facilitate the
M&A process. VDRs allow for complete, efficient and thorough assessment of an asset to take place
before anything further is discussed or negotiations with a seller even begin.
Even for the largest of companies, who routinely conduct due diligence on dozens of potential
acquisitions each year, the process of reviewing a target can be daunting, but when due diligence
is hosted through a virtual data room, the strategic buyer can not only cut the time required for
due diligence, but more importantly build confidence that they have been able to do a complete
and thorough review on every aspect of the asset or company in question. This, in turn, takes more
of the risk out of the M&A process. Plus, when it comes to the point of deal closure and post-
merger integration begins, all the contractual and financial information needed by the newly formed
organisation is ready, assembled and available in the VDR, which can be accessed by anyone with
permissions, at any time and from anywhere in the world.
This is not only important for the buy side however, in terms of sell side teams courting potential
investors (who may be thin on the ground), a VDR will ensure the asset is presented professionally
and will start to build trust, as potential buyers can see that nothing is being hidden and that full
disclosure is taking place.
Many large and mid-size Corporations have cash to invest at the moment because they have strong,
healthy balance sheets, but having the confidence to put that capital to work via an M&A strategy
may be difficult in this climate. If the cash is available however, Corporate buyers can significantly
add value to their businesses, while not unduly risking their investment, as long as targets are
strategically identified, rigorously assessed through the due diligence phase and successful post
merger integration can be achieved. If this formula is put into place, facilitated by expert advisors
and high-quality technology, positive balance sheets can be used to take real advantage of the
valuable opportunities currently available in this volatile market.