How do you create value?
Creating value is the ultimate goal of any M&A transaction, a bona fide way of boosting top-line growth and shareholder return.
Yet according to PWC, more than 70 percent of mergers fail to deliver anticipated shareholder value. As an example, just this week US Fintech FIS is spinning off Worldpay, only 4 years after acquiring it for $43 Billion USD. The announcement on February 13th lead to a 14% share decline in early market trading Monday for FIS.
As the Financial Times notes "FIS’s decision to break up the company follows criticism by activist shareholder DE Shaw, which demanded it reviews its business strategy, including considering undoing the 2019 deal."
In a recent cover article by Fraser Tennant Thinking Dimensions Managing Partner Scott Newton was delighted to discuss with Mr. Tennant value creation and M&A:
“If we take a look at one of the largest value-destruction cases in history, the $99bn write-off of AOL Time Warner, strategic assumptions were not valid, the merged firm did not have the capabilities to explore new opportunities, and cultures were never successfully integrated,” notes Scott Newton, managing partner at Thinking Dimensions. “After acquiring AOL for $165bn in 2001, the business unit was sold off to Verizon in 2015 for only $4.4bn.”
With synergies identified and quantified, it is of paramount importance for acquirers to have a value-creation mindset in place.
That mindset should be hardwired across the M&A lifecycle and go beyond what is expected to explore untapped areas of growth.
“A value-creation mindset is critically important,” suggests Mr Newton. “Successful acquirers have already built their first case for value creation before even drafting a letter of intent (LOI) or term sheet. The most challenging hurdle in value creation is to think about the business from the customer point of view. In many organisations, boards and management tend to be very internally focused.
“This challenge, for example, led to the board of Blockbuster declining to invest in Netflix at seed level terms,” he continues. “Ideally, acquirers should be able to describe the optimal state of the transaction in the future. What will it look like? How will we get there? What are the breakthroughs that will deliver exceptional returns to investors?”
You can read the full article at Financier Worldwide Magazine and through the link here.
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