Insights In Hindsight - Edition 15
Deepak Narayanan
Founder & CEO @Practus | Harvard Business School (Owner President Management)
From Caution to Opportunity: Unpacking the Resilient M&A Market
Integral to business strategies, Mergers and Acquisitions (M&As) reshape industries and alter the competitive landscapes, especially if the deals are designed and timed appropriately. From expanding market share and gaining access to new technologies to achieving cost synergies or responding to competitive pressures, M&As provide businesses the canvas to redefine their identities and adapt to global market dynamics.
In the overall business ecosystem, M&As are like a deliberate introduction of a new species that delivers competitive advantage or neutralizes threats, or both.?
Although they gained prominence in the late 19th and early 20th centuries, particularly in the United States during the industrialization era, the last fifty years have demonstrated the true potential of this strategic tool. Acquisitions such as Disney-Pixar (2006), Google-YouTube (2006), Facebook-Instagram (2012), or Microsoft-LinkedIn (2016) have helped the acquiring companies diversify their portfolios, create synergies, and establish market dominance in their respective sectors over several years. There are numerous examples in the Indian context as well – including HDFC – Times Bank (2000), Reliance Industries – Indian Petrochemicals Corporate Ltd (2002), Tech Mahindra – Satyam Computer Services (2009), Sun Pharma – Ranbaxy (2014), Hindustan Unilever – GlaxoSmithKline Consumer Healthcare (2018), and more. In recent years, there has been a significant uptick in M&A, particularly in areas like Fintech, Private Equity, and traditional business model consolidation.
Besides business synergies or competitive advantages, factors such as emerging technologies, economic upheavals, and regulatory dynamics also seem to be driving a majority of the M&A decisions in current times.
Read on for my views on some of the key trends in this space.?
Fintech is Driving Innovation
The fintech sector is witnessing an explosive growth phase because traditional finance institutions are in a race to acquire fintech startups to gain access to blockchain, artificial intelligence, digital payment platforms and other advanced technologies. For traditional finance companies, embracing innovation and integrating such technologies is key to expanding their customer base, as well as product and service offerings.
Private Equity is Influencing Growth
With substantial capital reserves, PE firms are actively seeking investment opportunities across sectors. Their approach often involves acquiring undervalued companies, improving operational efficiencies and driving new management practices, and selling them for a profit – a trend that has seen considerable success in the last decade. For example, in 2016, global PE firm, Blackstone acquired a majority stake in Mphasis in a bid to drive growth and operational enhancements, ultimately resulting in a successful turnaround. Blackstone successfully exited a portion of its stake through a secondary share sale in subsequent years. Or look at how PE firm 3GCapital acquired Burger King in 2010. Within just two years of implementing a series of operational changes and cost-efficiency measures, Burger King’s earnings had increased 49%, and 3G sold a stake in the company for a substantial profit. Later, Burger King merged with Tim Hortons to form Restaurant Brands International but by 2017, it was reported that 3G Capital and Burger King’s other shareholders had made over $14 billion from the turnaround that began in 2010.
Digital Transformation Considerations
Access to new technologies, digital capabilities, and talent have always been critical considerations leading up to mergers or acquisitions, particularly in industries that are traditionally not technology-focused. M&As play a vital role in implementing successful digital transformations, and ensuring efficiencies and relevance in light of market dynamics, changing consumer preferences and high-speed technological advancements.
ESG (Environmental, Social, and Governance) Considerations
Amid the growing prominence of ESG priorities over the last few years, companies have started evaluating potential acquisitions not just on financial performance, but also on their environmental impact, social responsibility, and governance structures. This trend is a true reflection of the broader societal shift towards sustainability and ethical business practices.
Business Model Consolidations
Traditional businesses across sectors like retail, manufacturing or healthcare continue to consolidate within their sectors to achieve economies of scale or counter new disruptors. For instance, Reliance Industries’ strategic acquisition of Future Group in 2020 consolidated its position in the retail sector, allowing Reliance to expand its footprint, enhance supply chain efficiencies, and integrate Future Group's assets into its extensive retail ecosystem.
In my view, the financial services sector is still undergoing one of its most significant restructuring phases amidst the increasingly complex and evolving regulatory changes, technological advancements, and consumer expectations. Many financial institutions will consider M&A strategies not just to propel inorganic growth plans, but to successfully navigate these emerging challenges, either by divesting non-core assets or by acquiring companies that offer a strategic fit, or access to new markets and technologies. But M&As are a complex and dynamic landscape, influenced by a multitude of factors and every sector will continue to have its own unique drivers and M&A trends that will redefine the respective markets.
#mergersandacquisitions #M&A #M&Atrends #M&Adrivers #inorganicgrowth #businessmodelconsolidation
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Snippets of Articles That May Interest You
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#BalancedScorecard #BSC #RobertKaplan #DavidNorton #organization #KPI #IndividualProductivity #OrganizationalPerformance #OrganizationalGoals
Hiring Right During Economic Uncertainty
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Updates from Practus
Episode 5 of Bizdom is out now!
You won't want to miss this thought-provoking and engaging episode with Jeby Cherian . This is the second part of a two-part series. To tune in, simply follow this link: https://linktr.ee/bizdom.
A few days back, I had join in for a panel discussion at #ImpactfulCEOsConclave2023 by ET Edge, presented by Times Now.
We discussed how CEOs can drive real impact by creating a culture of innovation in their organizations. I've included more details here.
That's all for this month! See you all next month and in the new year!