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1、Global M&A Report 2023 When M&A is the answer:In an uncertain market,bold moves will define the futureAcknowledgmentsThis report was prepared by the leadership team of Bain&Companys Global M&A and Divestitures practice,with special direction from Les Baird,partner;David Harding,advisory partner;Andr
2、ew Grosshans,partner;Kai Grass,partner;Suzanne Kumar,practice vice president;Madhurima Bhattacharya,associate partner;Joerg Ohmstedt,practice director;and an editorial team led by David Diamond.The authors wish to thank the many members of the Bain leadership team who contributed articles to this ye
3、ars report.Additionally,we wish to thank the following colleagues for their help with this report:Bain Partners Peter Horsley,Harshveer Singh,Colleen von Eckartsberg,Sam Rovit,Dale Stafford,Adam Haller,Jeff Haxer,and Joost Spits;Practice Directors Dahlnae Yu and Scott Nancarrow;Practice Senior Manag
4、ers Amy Wall and Dustin Rohrer;Senior Knowledge Specialist Dominika Adamaszek;Practice Senior Analyst Amol Mathur;Consultants Connie Cai,Michelle Tucker,and Arsalan Bukhari;and Associate Consultants Eliza Wright,Ben Thomas,and Virginia Miller.This work additionally benefited from the support of Bain
5、 Capability Networks Abhishek Jain,Siddharth Sharma,Ekaparna Ghosh,Divyam Dewan,Mohit Gupta,and Jayant Singh;as well as Bain Research and Data Services Emily Lane,John Peverley,Laura Caringella,Brandon Riney,Piotr Szostakowski,and Olgierd Kotylo.Copyright 2023 Bain&Company,Inc.All rights reserved.Th
6、is work is based on secondary market research,analysis of financial information available or provided to Bain&Company and a range of interviews with industry participants.Bain&Company has not independently verified any such information provided or available to Bain and makes no representation or war
7、ranty,express or implied,that such information is accurate or complete.Projected market and financial information,analyses and conclusions contained herein are based on the information described above and on Bain&Companys judgment,and should not be construed as definitive forecasts or guarantees of
8、future performance or results.The information and analysis herein does not constitute advice of any kind,is not intended to be used for investment purposes,and neither Bain&Company nor any of its subsidiaries or their respective officers,directors,shareholders,employees or agents accept any responsi
9、bility or liability with respect to the use of or reliance on any information or analysis contained in this document.This work is copyright Bain&Company and may not be published,transmitted,broadcast,copied,reproduced or reprinted in whole or in part without the explicit written permission of Bain&C
10、ompany.iGlobal M&A Report 2023ContentsLetter from the M&A Team .1State of the Market .3Looking Back at M&A in 2022 .4Looking Ahead to M&A in 2023 .12Hot Topics .18M&A in Times of Turbulence:Lessons from the Last Recession .19When Buying(vs.Building)Is the Right Move for Engine 2 .24Tougher Times:Put
11、ting the Diligence Back in Due Diligence .30How to Avoid the Fault Lines Sending Tremors through Cultural Integration in M&A .35Industries .43M&A in Aerospace and Defense:New Types of Deals in a Dynamic Industry .45M&A in Automotive and Mobility:Finding Alternative Routes to the Future .50What Consu
12、mer Goods Companies Are Learning from Alternative Deals .55Retails New M&A Balancing Act.60M&A in Diversified Industrials:ESG Plays Drive Breakthrough Capabilities .65M&A in Energy and Natural Resources:Beating the Odds in Energy Transition Deals .69M&A in Banking:Three Types of Deals for 2023 .75ii
13、Global M&A Report 2023ContentsM&A in Insurance:There Are Insurtech Deals to Be Done,but Proceed with Caution .79M&A in Payments:Four Ways That M&A Will Propel This Dynamic Sector .84 M&A in Wealth and Asset Management:How Deals Will Shake Up the Industry .88M&A in Healthcare and Life Sciences:Why th
14、e Industrys Wait-and-See Days Will End .93M&A in Media and Entertainment:To Interactivity and Beyond .99M&A in Technology:Never Waste a Good Crisis .102M&A in Telecommunications:How the End of Free Money Opens Up New Opportunities .106Regions .112M&A in Brazil:A Nation Prepares for Changes .113M&A i
15、n India:How Long Can This Hotspot Buck the Global Downturn?.117M&A in Japan:Pressing Pause on Transformative M&A .122M&A in the Middle East:How a Region Grows with M&A .125Methodology .130Key Contacts .1341Global M&A Report 2023Letter from the M&A TeamDear friends,Last year was a challenging one for
16、 all dealmakers as inflation,interest rates,geopolitical tensions,and increased regulatory oversight placed unprecedented demand on the skills of deal executives.Throughout it all,though,M&A perseverednot always in the same numbers or with the same processes as in the past,but deals got done.Overall
17、 deal value fell during the year,with multiples dropping from record highs in 2021 and fewer large deals.But the pace of small deals was surprisingly resilient.And dealmaker sentiment as we enter 2023 is optimistic.History tells us that companies making bold moves during times of turbulence tend to
18、win over the long term.The mission of this,our fifth annual report:Improve M&A by sharing the insights of the worlds best dealmakers.Les BairdLeader of Bains Global M&A practiceState of the MarketLooking Back at M&A in 2022 .4Looking Ahead to M&A in 2023 .124 4Even as macroeconomic uncertainty reset
19、 the M&A market,dealmakers persisted.By David Harding,Kai Grass,Andrew Grosshans,Suzanne Kumar,and Madhurima BhattacharyaAt a Glance After a strong first half of 2022,the market slowed in the second half,although fundamental deal activity persisted.Declines in multiples and a midyear pause in megade
20、als were the key contributors to a 36%decline in deal value in 2022 from a record high in 2021.Geopolitics,regulation,and other external factors also continued to impact deal activity patterns.The year 2022 was a tale of two halves.After a blockbuster year for M&A in 2021,the first five months of 20
21、22 reflected continued strong dealmaking activity.The big turning point occurred on June 16,2022,when an interest rate hike by the US Federal Reserve Bank,combined with heightened macroeconomic uncertainty,put a chill on the deal market.Megadeals greater than$10 billion went on pause while smaller d
22、eals slowed.Deal multiples tempered.The midyear correction resulted in a 36%decline in annual M&A deal value,to$3.8 trillion(see Figures 1 and 2).Yet volumes dropped by only 12%,suggesting resilience and commitment among dealmakers.State of the MarketLooking Back at M&A in 20225Global M&A Report 202
23、3Figure 1:Global M&A deal value fell by 36%in 2022 Note:Categorizations based on deal technique,industry,and acquirer business descriptionSource:Dealogic M&A deal market value(in trillions of US dollars)024$6TCompound annual growth rate for all M&A(20212022),36%20003.320011.720021.320031.520042.1200
24、53.020063.920074.620083.220092.320102.720112.820122.720132.820143.620154.620163.820173.620184.120194.020203.620215.920223.8Corporate M&A,30%PE portfolio add-ons,50%Financial investors,27%Special purpose acquisition companies,80%Venture capital/corporate venture capital,41%Figure 2:The year 2022 was
25、a tale of two halves Notes:Strategic deals include corporate M&A and PE portfolio add-ons;categorizations based on deal technique,industry,and acquirer business descriptionSource:Dealogic 2022 M&A deal market value(in billions of US dollars)Corporate M&APE portfolio add-onsFinancial investorsSpecial
26、 purpose acquisition companiesVenture capital/corporate venture capital00$500BJanuary391February345March382April442May454June254July269August246September248October231November245December2836Global M&A Report 2023As the market reset,we observed some unanticipated shifts in dealmaking and,at
27、 the same time,a persistence of longer-term trends.On the one hand,the sudden drop in megadeals and deal multiples reflected the impact of structural uncertainty on M&A.Yet M&A remained central to corporate strategies for growth and profitability as evidenced by the relatively consistent levels of d
28、eal volume and balanced mix of scale and scope deals.Structural uncertaintyInflation,interest rates,capital availability,industrial policy,national security,geopolitical tension,supply chain uncertaintyin 2022,dealmakers faced new levels of volatility everywhere they looked as well as risks from var
29、iables that previously werent a focus in many deal models.Junes interest rate hike marked a new phase in the era of capital superabundance.In the face of rising inflation,the Feds move to raise rates happened more quickly than many expected.The implications were felt internationally as other central
30、 banks followed suit.The role of the US dollar in global trade amplified the impact.Dealmakers across the globe suddenly confronted an unfamiliar unknownnamely,the cost and availability of capitalamid a weakening economic environment.After decades of low and predictable interest rates,however,acquir
31、ers told us they were shaken less by the rising cost of capital and more by the uncertainty they now faced.The interest rate warning shot impacted financial investors and strategic buyers differently.Private equity investors,reliant on debt for financing deals,were more immediately exposed to capita
32、l constraints and costs,which particularly impacted large deals.Lenders increased scrutiny on new offers as banks absorbed loan commitments that they could no longer syndicate.By comparison,corporates tend to be shielded from the near-term effects of interbank interest rate changes.Moreover,as we ex
33、plored in our Global M&A Report Midyear 2022,corporates have more options to finance M&A than leverage alonenamely,stock and cash.Regardless,the new level of uncertainty about the economic outlook revealed by the interest rate hike led to a secular reset in M&A value and volume for all players in th
34、e second half of 2022.Acquirers faced a variety of other external factors besides interest rate ambiguity.Inflation and the emerging recessionary environment challenged assumptions about base business trajectories for strategic acquirers and targets alike.Supply chain disruptions continued to impact
35、 the accuracy of projections,and industrial policy reemerged as a swing factor for sector economics.Western government responses to climate and geopolitical crises presaged shifts in corporate profit pools.In Europe,amid growing concern about the Russia-Ukraine war,the likely need to subsidize winte
36、r energy costs for consumers forced a pullback on funding for other social needs such as healthcare.In the US,the Inflation Reduction Act placed bets on renewables at the cost of fossil fuels,and national security concerns prompted a decoupling of the semiconductor industry from China.7Global M&A Re
37、port 2023Figure 3:2022 overall strategic deal value and volume by month 0,0002,0003,0002482022482783357157194216$400BNotes:Total for year=strategic value total;strategic deals include corporate M&A and PE portfolio add-ons;categorizations based on deal technique,industry,and ac
38、quirer business descriptionSource:DealogicJanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovember DecemberStrategic deal value(in billions of US dollars)Strategic deal volumeDeal valueDeal volumeStrategic dealmaking during an uncertain yearDespite a healthy start to 2022,the strategic dea
39、l market closed at$2.6 trillion,a 32%decline from the all-time high in 2021.Strategic deal volumes dropped 9%and continued to hold steady during the last few months of 2022,particularly in smaller to midsize deals(see Figure 3).Divestments held steady at 33%of deals.Deal multiples declined as higher
40、 discount rates caused companies to put a premium on near-term cash flows over long-term growth.Multiples fell from record highs in 2021 to a 10-year low median multiple of 11.9 times enterprise value to EBITDA(see Figure 4).The drop-off was most notable in the high-growth industries of tech and hea
41、lthcare and life scienceseach fell by more than five turns(see Figure 5).Its worth noting that this decline mirrored changes in public market valuations.For example,the S&P 500 was off by 20%during the same time period.M&A practitioners tell us that they respond to deal multiple volatility with lowe
42、r valuations and changes to deal structure,but few are waiting on the sidelines for multiples to stabilizeas evidenced by sustained deal volume.A midyear pause in megadeals(valued at more than$10 billion)also had a significant impact on total deal value for the year.The year began with more than a f
43、ew headline deals such as Microsofts 8Global M&A Report 2023Figure 4:Strategic M&A multiples fell to nearly 12 times from 2021s historic high of 15.4 timesNotes:Median deal multiples for announced strategic deals in which valuation data was available;strategic deals include corporate M&A and PE port
44、folio add-onsSource:Dealogic51015XMedian enterprise value to EBITDA multiples2022=11.9x2021=15.4x30405060708095122Figure 5:Technology and healthcare and life sciences multiples fell by more than five turnsNotes:Median deal multiples for announced strategic deals in w
45、hich valuation data was available;strategic deals include corporate M&A and PE portfolio add-onsSource:Dealogic0102030XMedian enterprise value to EBITDA multiples per industry(strategic deals)Technology19.723.328.923.4Healthcare and life sciences 15.015.920.315.1Consumerproducts15.313.915.911.9Advan
46、cedmanufacturing and services12.414.114.811.6Media10.011.315.813.2Retail10.911.412.78.8Energyand naturalresources 10.89.112.09.3Financial services8.59.212.610.7Telecommu-nications7.111.612.38.620022$69 billion bid for the gaming company Activision Blizzard,Broadcoms$61 billion offer for V
47、Mware,and the Prologis-Duke Realty logistics real estate deal for$23 billion.After a blockbuster May,the strategic megadeal market dried up temporarily in June.The rest of the year saw a steady(if more moderated)pace of megadeals.The healthcare and life sciences sector led the way for large deals,wi
48、th Johnson&Johnsons nearly$17 billion offer for Abiomed,a medtech company;the$27.8 billion Amgen-Horizon Therapeutics biotech deal;and,most recently,the Novozymes-Chr.Hansen merger for around$12 billion(see the chapter“M&A in Healthcare and Life Sciences:Why the Industrys Wait-and-See Days Will End”
49、).Overall,large strategic M&A deals were nearly evenly split between scale and scope theses (see Figure 6).We believe,over the long run,the relative balance of scale and scope observed during the first three quarters of 2022 is consistent with the winning strategies of corporate outperformersnamely,
50、a balancing of growth in revenue and profits.An examination of the largest deals reveals diverging sector dynamics and strategies.In 2022,advanced manufacturing and services,energy and natural resources,and financial services companies were most likely to strengthen their core business via scale dea
51、ls(see Figure 7).For advanced manufacturing and services and financial services,this continues a focus on efficiency and operations via scale deals.Energy and natural resources companies,however,showed a new shift toward scope M&A as energy transitions prompted large renewables deals(see the chapter
52、“M&A in Energy and Natural Resources:Beating the Odds in Energy Transition Deals”).Technology and healthcare and life sciences appetite for scope and capability deals remained constant as companies in both industries pursued top-line growth.The healthcare and life sciences sector led the way for lar
53、ge deals.Taking a geographic lens,we continued to see a preference for in-region targets as supply chain shocks,China-US decoupling,and geopolitical risks focused acquirer attention on targets closer to home.Europe shifted to intraregional deals,representing more than three-quarters of deal value in
54、 2022 compared with about two-thirds in recent years.Meanwhile,China and India remained largely domestic markets(more than 90%of value).In India,the most notable takeaway for the year was not flow directionality but rather the overall explosive growth in M&A.By the end of October,total deal value wa
55、s nearly 140%higher than in all of 2021.The rest of Asia and the Americas held steady in their balance of target by geography.In 2022,the regulatory environment reflected the longer-term trend of increased scrutiny on antitrust and national security grounds.For example,regulators in the UK,Europe,an
56、d the US raised both antitrust and national security concerns about Nvidias scrapped purchase of UK semiconductor maker Arm.And in the US,the Biden administration has adopted a more expansive 9Global M&A Report 202310Global M&A Report 2023Figure 6:Deals continue to be split evenly between scope and
57、scaleNotes:If more than 250 deals had a value greater than$1 billion in a given year,then only the top 250 deals were included;if fewer than 250 deals,only thosegreater than$1 billion were included;the top 250 announced strategic deals of the year from 2015 to 2021 exclude nonstrategic deals such as
58、 asset or property acquisitions,financial investment deals,government acquisitions,internal reorganizations,or minority stake acquisitions;deals classified by rationale using a proprietary classification framework,as per stated strategic rationale at the time of announcementSource:Bain M&A database
59、2022(N=2,845 companies)250 largest strategic deals with deal value greater than$1 billionPercentage of scale deals200021Q1Q32022Percentage of scope and capability deals594504852495151494951Figure 7:Consumer products and healthcare and life sciences primarily saw scop
60、e deals,while financial services and advanced manufacturing were driven by scale dealsNote:Based on the 197 deals valued at greater than$1 billion as of September 30,2022Source:Bain M&A database 2022(N=2,845 companies)ScaleScope020406080100%Percentage of scale and scope deals greater than$1 billion
61、split by industryConsumerproductsHealthcare and life sciencesRetailMediaTechnologyTelecommu-nicationsEnergy andnaturalresourcesAdvancedmanufacturingand services Financialservicesdefinition of“anticompetitive”and has been more likely to challenge large consolidation deals in court.Consider the succes
62、sful case against Bertelsmann-owned Penguin Random Houses proposed acquisition of Simon&Schuster on the grounds that authors,not just consumers,would be harmed.While many scrutinized deals are ultimately approved,a longer pre-close period introduces the risk of deterioration in the base business and
63、 employee morale.On the margin,this risk may have tempered boardroom appetite for large transformative deals over the past year.In the following chapter,“Looking Ahead to M&A in 2023,”we explain why savvy executives will keep their feet on the M&A accelerator even as competitors slam on the brakes.1
64、1Global M&A Report 202312In an uncertain market,executives are making the bold moves that will define the future.By David Harding,Kai Grass,Andrew Grosshans,and Suzanne KumarState of the MarketLooking Ahead to M&A in 2023At a GlanceWeve identified five M&A themes to watch for in the year ahead:Cash-
65、rich companies making strategic,bold moves.A continued prevalence of small to midsize deals.A balance of scale and scope deals.Valuations coming under further pressure.Companies reshaping portfolios through separations and divestitures.In 2023,savvy executives will keep their feet on their M&A accel
66、erators,even as competitors slam on the brakes in the face of turbulence.Experienced dealmakers are familiar with the cyclical nature of the M&A market.Deal values and deal multiples decline as sellers hold back and acquirers lose conviction.As uncertainty impacts both the base business of acquirers
67、 and targets,it becomes harder to make decisions about deals.Its no wonder why many executives lose their appetites for the deal process during turbulent times.13Global M&A Report 2023Yet history tells us that winners dont pause M&A during downturns,rather they take advantage of opportunities to res
68、hape their industries.Companies that move quickly when others hesitate are rewarded.Bain research on M&A in times of turbulence validates how M&A was part of the winning response in previous down cycles.We examined the acquisition activity of 2,845 companies from around the world during the global f
69、inancial crisis and economic downturn of 20082009.We found that in the long run,companies that executed at least one deal per year during the economic downturn earned 120 basis points more in total shareholder returns than companies that were inactive in M&A.Moreover,as we explore in the chapter“M&A
70、 in Times of Turbulence:Lessons from the Last Recession,”many industry-defining deals were made throughout the last downturn.Deal practitioners are prepared to take advantage of this moment.We surveyed around 300 M&A executives globally about their outlook and priorities for dealmaking in 2023.Respo
71、ndents anticipate closing a similar number of deals,if not more,in the year ahead,encouraged by more attractive asset availability and decreased competition.They express confidence in the ability for M&A to create value.Nearly two-thirds of respondents report that acquisitions completed in the previ
72、ous three years have met or exceeded expectations.Based on our observations from earlier down cycles,we have identified five themes to keep an eye on in 2023:cash-rich companies making strategic,bold moves;continued prevalence of small to midsize deals;a balance of scale and scope deals;further pres
73、sure on valuations;and portfolio reshaping through separation and divestitures.Cash-rich companies making strategic,bold movesIn 20082009,numerous industry-defining deals positioned acquirers for faster,more profitable growth out of the downturn.In the current cycle,too,companies with a strong marke
74、t position,cash on hand,and debt capacity will have the upper hand to execute transactions.These companies should be confirming their strategic M&A roadmaps,revisiting deal models,and laying the groundwork to move fast on desirable targets(large and small).Nearly every sector has a few cash-rich mar
75、ket leaders.Energy,industrials,and technology stand out as sectors in which the top players have solid balance sheets to make bold moves.Strong performing companies with an experienced track record of M&A will be the best positioned to do the largest transformational deals.Sectors with struggling as
76、sets may find more tolerance among regulators for large consolidation deals.14Global M&A Report 2023Continued prevalence of small to midsize dealsThousands of deals valued at less than$500 million make up the bulk of M&A activity each year.We expect this to continue.Companies look to M&A to address
77、strategic needs to expand markets,build new engines for growth,and fill capability gaps.Smaller to midsize deals will be easier than megadeals to complete given relatively lower risk,less reliance on financing,and less regulatory scrutiny.Dealmakers in many industries may shy away from pursuing deal
78、s that could wind up in regulatory crosshairs as extended pre-close periods incur many direct and indirect costs.Sectors with struggling assets,such as banking in Europe and telcos in developing economies,may find more tolerance among regulators for large consolidation deals.A balance of scale and s
79、cope dealsA high interest rate environment and weak economy put a premium on assets with cash flow and a line of sight to rapid synergies,supporting a near-term shift to scale deals.For example,in healthcare,moves such as Johnson&Johnsons$16.6 billion acquisition of Abiomed in November 2022 signal a
80、 return to category leadership.At the same time,our M&A Practitioners 2023 Outlook Survey indicates that appetite will continue for deals to build and grow new businesses.These“Engine 2”deals offer speed to market and efficiency that organic moves cant matchsee“When Buying(vs.Building)Is the Right M
81、ove for Engine 2.”Energy companies are likely to be a prime example of this approach as they use cash to consolidate in existing markets while shifting to renewables via scope dealssee“M&A in Energy and Natural Resources:Beating the Odds in Energy Transition Deals.”Similarly in retail,while we expec
82、t to see retailers pursue scale deals,such as the$25 billion Kroger-Albertsons deal announced in October 2022,they are also likely to use scope M&A to establish“beyond trading”Engine 2 businessessee“Retails New M&A Balancing Act.”Further pressure on valuationsUncertainty regarding cost and availabil
83、ity of capital,as well as the overall macroeconomic outlook,will likely cause dealmakers to be more conservative in valuations.History suggests that valuations typically find a floor at around 9 times to 10 times enterprise value to EBITDA,another 2 to 3 turns lower than the 2022 median.Yet strategi
84、c buyers hoping for a steal should be prepared for increased competition from financial buyers as the year unfolds.Private equity firms are resilient in fragile economic environments and will continue to have record amounts of dry powder,an appetite for deals,and a willingness to pay for desired ass
85、ets.15Global M&A Report 2023Portfolio reshaping through separation and divestituresDown cycles and uncertainty force companies to reevaluate their portfolios under new scenarios.While we expect boards to consider divestitures more seriously,it takes a lot of conviction to do one in a downturn.Corpor
86、ate executives often drag their feet on selling underperforming assets “at a loss.”Yet this fear is often misplaced:at some point,no amount of multiple expansion can offset declining performance in the business itself,especially one that is no longer receiving attention or investment.We expect to se
87、e the most divestiture activity in sectors in transition,where divestitures can help fund new investments.For example,the shift to renewable energy from fossil fuels and internal combustion engines could spur more divestment activity in the energy and automobile industriessee“M&A in Automotive and M
88、obility:Finding Alternative Routes to the Future.”Moreover,a quick sale unlocks not only capital but also leadership focus.For this reason,we expect the relatively high level of divestiture activity in consumer products to continue.What does this mean for the M&A practitioner?In a challenging macroe
89、conomic environment and deal market down cycle,M&A executives should customize their toolkits to accelerate decision making,gain conviction in potential deals,and preserve value through integration(see Figure 1).Figure 1:A strong M&A capability requires strategy-driven enablers to deliver value acro
90、ss the M&A value chainSource:Bain&Company Transaction processSeparation planningCarve-out executionEvaluation and learningsDuediligenceStrategyM&A and divestituresSourcing and screeningIntegration planningIntegration executionFinding the right dealM&A operating modelValidating the dealDelivering the
91、 valueSeparability assessmentand blueprintAcquisitionsDivestitures16Global M&A Report 2023That means confirming portfolio strategies and refreshing M&A roadmaps to enable nimble decision making.Now is the time to revise scenario planning to account for cost and availability of capital,geopolitical d
92、isruptions,and other uncertainties.The best companies devote energy to scrutinize their competitors,determining which of them have both the cash and motivation to make bold moves.Winners also identify where and how they can use M&A to accelerate or scale innovation or build an Engine 2.And they expa
93、nd the pipeline with a broader view of prospective targets.That gives them a faster response time when those targets come to market and prepares them with viable alternatives if their top choices dont work out.They gain conviction quickly through rapid and strategic diligence and valuation.Market vo
94、latility means buyers need to be confident that their target will be resilient in several future scenarios,for example.And increasing interest rates mean buyers need to determine how to accelerate synergies.Moreover,at a time when speed counts more than ever,nearly 40%of surveyed M&A practitioners t
95、ell us that a volatile market is making the deal process take longer.All of this implies that companies need to come armed with proprietary insights from due diligence that is faster,deeper,and better focused than the approach taken in a more stable environment.Among the necessary moves:getting more
96、 detailed on the sources of value in the marketplace,revenue,costs,talent,and technologyand laying integration plans during the diligence,not afterward(see“Tougher Times:Putting the Diligence Back in Due Diligence”).Its also now more critical to preserve and amplify value through integration.Our M&A
97、 Practitioners 2023 Outlook Survey found that while culture is an early focus area for 80%of integrations,75%of acquirers still struggle with cultural issues that require serious interventions.The answer is to focus on the specific issues most likely to disrupt the integration rather than the broade
98、r cultural landscape that could take years to address.We call these specific issues“cultural fault lines,”which,similar to fault lines between tectonic plates,cause foreseeable,frequent,and disruptive frictions when and where they conflict.There are three common types of cultural fault lines in merg
99、er integrations:differences in purpose,decision making,and engagement(see“How to Avoid the Fault Lines Sending Tremors through Cultural Integration in M&A”).Some companies may consider bigger portfolio moves such as a spin-off.Such companies should develop a well-crafted separation thesis that helps
100、 them to focus and provides a roadmap to value creation.Bains recent Spinoff Performance Study(2021)revealed that top-quartile separations performed exceptionally well,with 75%higher combined market caps two years after the separation.The other three-quarters of separations either failed to create v
101、alue or destroyed value two years down the road(see the HBR.org article“Research:Few Corporate Spinoffs Deliver Value”).The existence of a clear and robust separation thesis was the single biggest difference between top-and bottom-quartile performers.The following chapters in this report explore the
102、 insights that executives can learn from the best dealmakers and how M&A activity within industries and select regions reflects evolving sector strategies.Hot TopicsM&A in Times of Turbulence:Lessons from the Last Recession .19When Buying(vs.Building)Is the Right Move for Engine 2 .24Tougher Times:P
103、utting the Diligence Back in Due Diligence .30How to Avoid the Fault Lines Sending Tremors through Cultural Integration in M&A .3519The opportunity cost is huge for companies that stay on the sidelines.By Andrew Grosshans,David Harding,Suzanne Kumar,and Joerg OhmstedtHot TopicsM&A in Times of Turbul
104、ence:Lessons from the Last RecessionAt a Glance Many companies are wary about acquiring during this downturn,but 20082009s active acquirers outperformed their less-active competitors over the long haul.More specifically,they achieved a greater compounded average annual total shareholder return than
105、that of their less-active competitors.Being an active acquirer is not an end in itself.The most important objective is to execute the strategybe it strengthening the core and increasing scale or creating strategic options via a scope deal.Bains bedrock beliefs on how to create value from M&A rest on
106、 fundamental truths that have stood the test of time:If you want to be successful at M&A,develop a repeatable model.Do it often,learn from your mistakes,and make it a material part of your business.Done right,it will generate higher shareholder returns.This year,we look back at the global financial
107、crisis of 20082009 and ask what lessons can be learned from different M&A behavior during times of turbulence.20Global M&A Report 2023Stay in the game through tough times to come out aheadWe assessed the returns to shareholders of different M&A strategies employed by a universe of 2,845 publicly tra
108、ded companies from around the world for the period between 2007 and 2017.In 2007,worldwide deals surpassed 40,000 for the first time;their cumulative value hit$4.6 trillion,40%above the dotcom peak in 2000.It seemed like the M&A party might never stop.But when the global financial crisis brought the
109、 boom to an abrupt end and most economies went into recession sometime during 20082009,the hangover set in.Many business leaders grew leery of any kind of dealmakingdeal volume dropped by 14%from 2007 to 2009.The reaction was understandable,but the opportunity cost for many was huge.Companies that w
110、ere active in M&A during turbulent times,the data shows,consistently outperformed those that stayed away from deals.Companies that acquired during the last economic downturn achieved an average annual total shareholder return(TSR)of 5.9%compared with 4.7%for those that did not(see Figure 1).Figure 1
111、:Companies that acquired during the last economic downturn have tended to outperform significantly over the long term Sources:Dealogic;Bain M&A database 2022(N=2,845 companies)Average total shareholder return(compound annual growth rate 20072017)4.7%5.9%No acquisitionin 20082009One or more acquisiti
112、onsin 2008200921Global M&A Report 2023Of course,being an active acquirer is not an end in itself.The most important objective of M&A is to help execute a companys strategybe it strengthening the core business and increasing scale or creating strategic options via a scope deal.During a recession,M&A
113、also serves another purpose:creating strategic options.The post-recession landscape will be very different,and no one really knows how supply chains may change,what the financial system will look like,or to what degree consumers will have changed their spending patterns.Several industry-defining dea
114、ls were made throughout the last economic recession.In 2008,BASF acquired Ciba for$5.4 billion in what accounted for the largest acquisition in BASFs company history until that point,with the aim to fully integrate Ciba into BASF and a focus on realizing cost synergies initially targeted at 10%of sa
115、les(and subsequently raised).In 2009,Stanley Worksnow Stanley Black&Deckerleveraged its strong M&A capability to significantly grow share by acquiring the larger Black&Decker.The merger was well-timed as the construction cycle exposure made Black&Decker vulnerable in 2009,leading to a 22%drop in rev
116、enue and a 41%drop in earnings before interest and taxes,which,in turn,lowered its valuation.Stanley was able to leverage a proven integration capability that it had built from an aggressive M&A program started in 2002 with the acquisition of 33 companies over the next several years.Some companies u
117、sed their resources to expand their strategic options through acquisitions despite the downturn.For example,Pfizers agreement to acquire Wyeth for$68.4 billion in early 2009 bought some time for Pfizer as patents were about to expire on several of its leading medicines,and it gave Pfizer an opportun
118、ity to diversify its pharmaceuticals portfolio and expand its pipeline(with a particular focus on biopharmaceuticals and vaccines).In the second half of 2009,Disney acquired superhero stable Marvel for$4.2 billion,with the aim of putting these characters to work in its television shows,video games,t
119、heme parks,and movies.Should companies adjust their M&A behavior during times of turbulence?We have outlined the returns of different types of acquirers regarding their prerecession and recession-era M&A activity.Those companies that were active acquirers before the recession performed best by stayi
120、ng activetheir average annual TSR was 6.1%compared with 3.8%for those that decided to move to the sidelines(see Figure 2,left).For those companies that were inactive before the recession,a change in their M&A behavior toward becoming an active acquirer resulted in an annual TSR of 5.5%compared with
121、5.0%for those that remained inactive(see Figure 2,right).Several industry-defining deals were made throughout the last economic recession.22Global M&A Report 2023Figure 2:Active acquirers outperformed bystanders during the last economic downturnSources:Dealogic;Bain M&A database 2022(N=2,845 compani
122、es)Average total shareholder returns(compound annual growth rate 20072017)One or moreacquisitionsNoacquisitionPrerecession M&A activity6.1%3.8%5.5%5.0%M&A activity during recessionOne or more acquisitionsOne or more acquisitionsNo acquisitionNo acquisition200820092007What can be learned from the mos
123、t successful acquirers?The core research underlying our belief in the concept of repeatable M&A(replicated multiple times over the past 20 years)shows that frequency(how many deals you do)and materiality(how much of it you do)define a lot of what differentiates M&A performance(see Figure 3).It does
124、not take a lot of deals to become a frequent acquirer,about one per year.To be a material acquirer does require heft:75%or more of your market cap from acquired companies over a decade.Those companies that are both frequent and material acquirers over a 10-year periodwe call them“mountain climbers”(
125、see Figure 3,top right)create the greatest TSRs.Consistent M&A activity over economic cycles contributes to higher TSR.This finding holds up year after year,across industries.Deal success and deal failure is more a matter of cumulative experience and capability in making a deal and less a function o
126、f standalone deal circumstances.23Global M&A Report 2023Figure 3:Companies that do M&A frequently and at scale outperform Notes:Cumulative relative deal value is the sum of relative deal size(deal value divided by market capitalization three months prior to announcement)across all deals between 2007
127、 and 2017;deal size for deals with undisclosed value is estimated using median deal value benchmark calculated for each sector from disclosed deal values as a percentage of acquirer market capitalization;deals involving partial stake acquisitions,increase in controlling interest,and remaining intere
128、st acquisitions are excluded;multistep deals have been consolidated into a single deal;consortium,intracompany,and property portfolio deals excludedSources:Dealogic;Bain M&A database 2022(N=2,845 companies)Average total shareholder returns(compound annual growth rate 20072017)Cumulative relative dea
129、l valueSerial bolt-ons6.7%Mountain climbers7.9%Selected fill-ins4.6%Selective large bets3.7%AcquisitionfrequencyAbove-average deal activity(greater than or equalto one deal per year)Below-average deal activity(less than one deal per year)Less than or equal to 75%of buyers market capGreater than 75%o
130、f buyers market capAverage total shareholder returnActives5.4%Inactives4.3%A big learning from our study comes from the failure of companies that are infrequent acquirers but that undertake large deals relative to their market capitalizationwe refer to such companies as“selective large bets”(see Fig
131、ure 3,bottom right).While we outlined above why we are encouraging M&A during turbulent times,companies that have not been doing deals to build their M&A muscle should be more cautious when the opportunity of a lifetime comes along.Among all companies studied,selective large bets are the worst perfo
132、rmers over time as their limited acquisition experience,combined with investment in a large deal,usually results in poor deal outcomes.They generated only 3.7%in annual TSR from 2007 to 2017.Similar to most things in life,you get better at what you do when you do it repeatedly.Companies that acquire
133、 frequently,“serial bolt-ons”(see Figure 3,top left),tend to outperform the average company on TSR(6.7%annual).Mountain climbers,those companies that not only acquire frequently but that also develop the capabilities to undertake larger deals,do even better.Their 7.9%annual TSR leads the class.Inves
134、tors have come to recognize this.With the drop of M&A activity in 2022 and all the current turbulence,some executives will no doubt sit on the sidelines thinking it is safer not to play.Experience suggests that their performance will suffer accordingly.The winners will be those that stay in the game
135、and learn how to play it well.24Three ways that companies turn to M&A to scale new businesses faster,cheaper,and more effectively.By Alexandra Ramanathan,Vincent Vandierendonck,and Mikaela BoydHot TopicsWhen Buying(vs.Building)Is the Right Move for Engine 2At a Glance Companies looking for a new“Eng
136、ine 2”to prepare for future growth are considering the best ways to make the move amid macroeconomic uncertainty.Our analysis found that among the 58 most successful Engine 2 businesses,40 used M&A as a significant part of their scaling plans.Most Engine 2 deals are rolling up businesses with simila
137、r cores,buying capabilities to create a new core,or buying the new core already at scale.As they face macroeconomic uncertainty in their industry,most business leaders acknowledge that its more vital than ever to develop and accelerate an alternative engine of growth for the future.We refer to these
138、 new businesses within existing companies that use the scale benefits of the core business to grow faster than an independent start-up could as“Engine 2s.”And downturns are the times when companies make the bold moves that enable them to emerge stronger than their competitors.25Global M&A Report 202
139、3While it can be tempting to build a new business from the ground up,our new research strongly supports the case for buying.We looked at hundreds of Engine 2 businesses over the past 25 years,and of the 58 most successful,40 used M&A as a significant part of their scaling plans.Its an important find
140、ing at a time when lower valuations and less competition for deals makes it a buyers market(see Figure 1).The first major advantage to buying involves speed.Building a team organically can take years longer than buying,which may put the company behind in a fast-moving competitive environment,allowin
141、g others to secure a strategic edge.The speed advantage is multiplied for acquirers that are skilled at integration and that design ways to begin delivering shared value on day one.The second advantage involves effectiveness.Without in-house expertise for the new business,a company could be set back
142、 by several mistakes along the scaling journey.Integration and alignment challenges are typically easier to overcome than trying to build a new business without the veteran insights.A final advantage is cost.M&A comes with premiums,for sure,but there are high premiums required to lure critical talen
143、t away individually.And building a business also often comes with costs associated with false starts,reorganizations,and executive interventions that may be necessary before the organically built organization begins to deliver on its mission.Figure 1:M&A has been used to accelerate roughly two-third
144、s of the most successful Engine 2 businesses Source:Bain analysisStrategies of the largest Engine 2 business attempts020406080100%Successful Engine 2 businessesEnd-to-end organicsetup and expansion M&A played a smallor negligible role M&A played a significant roleRole of M&ABuying the new corealread
145、y at scaleBuying capabilities to create a new coreRolling up businesseswith similar cores Single major acquisition of an existing end-to-end engine(e.g.,Dell/EMC)Acquirer buys targets with capabilities or assets that will help in the formation of the desired new engine(e.g.,Disney/BAMTech)Build scal
146、e rapidly through multiple acquisitions of existing players(e.g.,Atlas Copcos vacuum techniquebusiness unit)26Global M&A Report 2023Figure 2:Three common archetypes for successfully buying and scaling an Engine 2123Buying capabilities to create a new coreBuying a new core already at scaleRolling up
147、businesses with similar coresSource:Bain&CompanyThe key to successfully buying and scaling an Engine 2 starts with understanding that the unique assets of the target and the scaling journey of the acquirer will vary.Most,however,will generally fall into one of three common archetypes.While these arc
148、hetypes all share the ultimate goal of scaling a new business,they use different acquisition strategies to get thereand each requires tailored priorities and areas of focus.Well look at these archetypes one by one(see Figure 2).Rolling up businesses with similar coresIn these cases,an acquirer typic
149、ally has some experience in the desired Engine 2 business and is looking to build scale rapidly through multiple acquisitions of existing players.This traditional business-building strategy has been more difficult in recent years because of mounting competition from well-funded private equity acquir
150、ers.To succeed,the buyer needs to be especially strong in diligence,confirming the strength of the business and how well the asset fits with the new engine.Its also critical to emphasize integrating the new asset into the larger engine with minimal IT dis-synergies and minimal losses of customers an
151、d key talent.Atlas Copco was interested in moving beyond its core of compressors with a new Engine 2 in vacuum technique.It knew from experience in similar industries that the market was poised for growth and that there would be great value in scale leadership.To build out quickly,the company 27Glob
152、al M&A Report 2023acquired Edwards Group,and the subsequent success reinforced its conviction.Atlas Copco added verticals and geographic coverage to the engine with acquisitions of Leybold,CSK,Brooks Automations semiconductor cryogenics business,and more than 10 service and distribution assets over
153、the past three years.Success was the result of a combination of the right strategic plan and outstanding execution,including extensive due diligence and efficient integration to scale up the new engine and build a leadership position in a growing market.There are a few critical steps for boosting th
154、e odds of success in roll-up acquisitions.Buyers need to assess process and technology alignment to prevent deal-breaking IT/systems surprises that could add major expenses or delay integration after signing.Its also critical to be cautious about any changes that could have possible negative impacts
155、 with customers or sales teams,especially those resulting from IT/systems integration.The best buyers craft the systems integration roadmap with intentional choices that prioritize the long-term goals of the new engine over short-term desires for speed.Buying capabilities to create a new coreIn thes
156、e situations,the M&A target is strategically attractive for capabilities or assets that will expand a new growth engine the company has in mind.The target may have critical talent,data,infrastructure,or domain knowledge that the acquirer lacks and that can be applied to existing or future new growth
157、 engines.These acquisitions are most common in technology,in which serial acquirers such as Google and Microsoft have bought hundreds of smaller companies with the aim of applying learnings and expertise into new and enhanced products and services.For example,Google Maps resulted in large part from
158、the acquisitions of several mapping,visualization,and routing companies.Using this approach,assets may be smaller and have relatively lower price points,allowing for more attempts and variation in outcomes.The most skilled practitioners apply lessons from these acquisitions across multiple engines a
159、nd business units,creating new value in unpredictable ways.Running this strategy successfully requires excellent talent retention,culture integration,and a patient board willing to wait out a possible multiyear journey with twists and turns.Consider the route taken by Disney when it envisioned the p
160、otential for streaming content as a new growth engine.Disney started on that path in 2009 by investing in Hulu,but its direct-to-consumer ambitions were greatly accelerated with its 2017 acquisition of BAMTech,a technology service and video streaming company previously formed by Major League Basebal
161、l.Disney started by applying BAMTech expertise to WatchESPN,which became ESPN+.That set the stage for ambitions beyond live sports,including the potential to distribute its flagship content through proprietary streaming.The BAMTech acquisition gave Disney several vital elements for what would eventu
162、ally become Disney+,including robust back-end technology,insights into customer needs,and essential talent to tie together the value proposition with the new technology.These and other capabilities acquired through BAMTech enabled Disney+to become a vital Engine 2 for the iconic media company.28Glob
163、al M&A Report 2023So what are some of the differentiators for successful capability acquirers?They test the degree to which the value of the asset can be lost if critical talent leaves.They use available data to look for the cultural fault lines that could make culture integration and talent retenti
164、on more challenging.They invest in culture integration that goes far beyond day one.And they test and learn new ways of working together in the integration management office and integration environment before broadening to the entire company.Buying the new core already at scaleIn these deals,a compa
165、ny makes a single,major acquisition of an Engine 2 business that it plans to aggressively grow.Chinas TCL ran this motion successfully when it bought Zhonghuan Semiconductor to add a large-scale Engine 2 of solar materials and modules with runway to grow even larger under the consumer electronics le
166、aders direction.Instead of rolling up smaller businesses or engineering a new core through a“string of pearls,”this approach involves buying the whole necklace.For example,if Disney had pursued this strategy,it might have considered buying Netflix to build its streaming business.Using this strategy,
167、the acquirer must feel confident that it can rely on its existing resources and capabilities to grow the new business in ways that make the high acquisition costs worthwhile.Thats typically achieved by adding value that wasnt possible when the target was on its own.For example,the acquirer may have
168、sales relationships,R&D resources,unique assets,access to data or users,or operational excellence that can be used to bring the target to new heights.While this approach usually is the fastest path to scaling a new Engine 2,it also can be the most expensive,incurring the largest acquisition premiums
169、.Additionally,it requires the highest degree of integration difficulty because of the complexities of large-scale transactions and change.Dells purchase of EMC in 2016 set the standard for large-scale Engine 2 acquisitions,and it still stands as one of the most successful in history.Dell knew the ma
170、rket was moving toward connected storage and servers,but it struggled to get traction with its organically developed storage products.EMC looked to be a perfect target.It was the market leader not only in storage and virtualization(with VMware)but also with enterprise customers,which Dell wanted so
171、that it could make more of a push for its existing core.Among many potential integration priorities,Dell started with cross-selling and moved rapidly to enable its sales team to bring EMCs storage and VMwares solutions into Dell accounts(and vice versa),turbocharging both Dells traditional core and
172、the acquired businesses.Again,the acquisition and integration strategy were viewed as huge successes,achieving synergy targets in half the expected time and hastening Dells ability to realize its Engine 2 ambitions in a fast-moving and highly competitive environment.Companies that are most successfu
173、l when buying a new growth engine at scale test specific value creation theses with potential customers to confirm the magnitude of the potential benefit.They also build an operating model and management system that enable the right points of overlap to deliver new Engine 2 value while retaining the
174、 unique elements that made the asset valuable in the first place.29Global M&A Report 2023Four fundamental steps to successful executionThese archetypes for buying vs.building are all viable approaches to accelerating a new growth engine.What separates the success stories from the also-rans is execut
175、ion.Many companies have learned that the priorities and choices that work for core businesses do not always translate to establishing and scaling a new business.Regardless of the archetype a company chooses,we see four fundamental steps that no acquirer should overlook.Start with a laser-focused due
176、 diligence that tests the assets fit with the elements that will be most important to your scaling.Draft a clear integration thesis,and perform the integration with the aim of preserving the unique assets and capabilities that made the target desirable while also moving rapidly to the new customer v
177、alue proposition for Engine 2.Design the integration plan to focus on the pivotal decisions that unlock customer value for the new engine,not just for the fastest path to day one.Work backward from the clear killer app you envisioned at deal signing,and invest integration energy in the choices and f
178、unctions that will bring that vision to life.This may require a more deliberate integration with more executive attention than in-core integrations.Go beyond merely financial incentives for the critical talent you identified in the integration.Include them in planning the integration and defining th
179、e vision for how to scale the new engineboth to increase retention and to leverage their unique insights,which may not exist elsewhere.As more companies opt to buy to speed Engine 2 growth,more success stories are emergingand the details that contribute to that success are coming into sharper focus.
180、Winning companies will be those that take these lessons to heart as they make bold moves in the downturn.Theyll take advantage of lower premiums and less competition for deals to accelerate their new growth engine,outpacing competitors more effectively and for less total cost.30Uncertain economic ti
181、mes call for more robust diligence to support a deals price tagor identify risks that warrant walking away from a deal.By Benjamin Farmer,Adam Haller,and Amy WallHot TopicsTougher Times:Putting the Diligence Back in Due DiligenceAt a Glance To succeed in a volatile market,be armed with proprietary i
182、nsights from a world-class diligence that goes deeper,with more focus,and in less time than your competitors.Initiating diligence before entering the M&A process helps companies avoid being distracted by potential deals that may not be a good fit.Winners go beyond high-level benchmarks in diligence,
183、using the full universe of data available to confidently underwrite deal value.The most successful acquirers think through integration implications(how long,what cost,who to engage)during,not after,diligence.A manufacturing company relied on its historical experience to estimate cost synergies for a
184、 potential acquisition.Facing competition for the deal,it realized it needed to dig deeper for potential sources of value and conducted an outside-in diligence,drawing on additional benchmarks,primary research,and scraping external data sources.The extra effort led the company to uncover more than t
185、wice the original estimate of cost synergies and make an offer that allowed it to win the asset.Ultimately,the combined company exceeded the synergies estimated in diligence,making the deal an unqualified success for shareholders.31Global M&A Report 2023A technology companys investment thesis for a
186、potential acquisition relied on the capabilities of the targets talent base.The acquirer used outside-in mapping of the talent base(more than 10,000 employees)to understand the technical skills and training of the targets employees.The analysis uncovered that the talent base was missing many of the
187、technical skills that they were looking to acquire.It was a key factor in convincing the company to walk away from the deal.Multiples are in extremely volatile territory,and if history tells us anything,its that winning companies dont sit on the M&A sidelines,waiting for the market to bottom out;the
188、y do deals.But in the race to acquire in a volatile market,its more important than ever to have confidence in your deals.The surest way to succeed is to come armed with proprietary insights from a diligence that is faster,deeper,and more focused than your competitors.Better diligence allows you to b
189、e bold where others might hesitate.Market leaders use due diligence in three ways to win(or avoid)deals in todays environment:Theyre proactive;they amplify value through proprietary insights;and they plan for successful integration during diligence,not afterward.Be proactiveMarket leaders will not b
190、e reactive,but will initiate diligence before even entering the M&A process.This helps them avoid being distracted by potential deals that may not be a good fit with their strategy.Our M&A Practitioners 2023 Outlook Survey found that a clear deal thesis and clear alignment to strategy are the two mo
191、st important factors leading to successful deals(see Figure 1).Developing that thesis as early as possible allows the acquirers to move quickly when deals are available.The best companies regularly refresh their sector screen and have an evergreen short list of priority targets that are aligned to s
192、trategy.They develop an outside-in view of value so that they can move quickly if opportunity arisesor take the offensive and approach the target proactively with conviction,understanding that the industry may be forever changed if a competitor makes the first move.A leading life sciences company ma
193、intains a running list of its top 15 to 20 targets.Using outside-in diligence,the company systematically creates a deal thesis and detailed financial model for each potential deal,updating that view as market conditions change.The company regularly refreshes its short list,looking at more than a hun
194、dred targets a year to understand the market landscape and assess its priorities.Similarly,a leading global beverage company uses a data-driven view of its market to stay focused on core targets.This includes understanding competitive positioning and whitespace by geography and maintaining a view of
195、 potential synergies,cost to achieve,and speed bumps(regulatory review,capital availability,management bandwidth).The disciplined process ensures that resources are focused on the deals they want to make happen without wasting time on deals that dont move the ball forward on strategic priorities.32F
196、igure 1:A clear deal thesis is the top contributor to successful acquisitions Note:Answered only by respondents who indicated that they had made acquisitions that exceed expectationsSource:Bain M&A Practitioners 2023 Outlook Survey Considering all the targets that your company has acquired over the
197、past three years,for any deals that exceeded expectations and created value,what were the main reasons?Select up to three.01020304050%Enabled functional capability sharing early in the integrationEffective sizing and capture of cost synergiesEffective sizing and capture of revenue synergiesAligned t
198、op leadership and decision rights earlyDeployed(or developed)a proven playbook for integrationEvaluated culture/strategic fit earlyRetained critical talent of acquired targetDeveloped the right operating model to integrate and scalethe businessClear integration thesisConducted high-quality due dilig
199、enceClear alignment on strategyClear deal thesisGlobal M&A Report 2023Amplify value through proprietary insightsWith increasing interest rates and macroeconomic volatility,acquirers need to sharpen their pencils,ensuring real confidence in the deal thesis and looking past the obvious to identify all
200、 possible sources of value.Winners go beyond high-level benchmarks in diligence,using the full universe of data available to them to create proprietary insights that will allow them to confidently underwrite deal value.This includes using advanced analytics tools,scraping external data sources,and a
201、pplying primary research creatively to address blind spots.A major consumer goods company recently explored the potential for expanding into the alternative milk space.Lacking visibility into the out-of-home market that represented more than half of the targets business,it conducted in-person barist
202、a interviews and observations at coffee shops in major metro areas.In only five days,the company was able to unlock insights that allowed it to measure a statistically significant share of alternative milk offerings in the coffee shop channel and truly understand the market opportunity.A medical dia
203、gnostic company recently considered walking away from a deal when it couldnt agree with the target on price.When it decided to conduct additional diligence on pipeline products not yet in the market using extensive expert and customer interviews,it was able to build enough confidence in the potentia
204、l value to put forward a sweetened offer and complete the acquisition.33Global M&A Report 2023Plan for successful integration during diligence,not afterwardIn diligence,the focus is often on getting the deal done,with execution an afterthought.We see the most successful acquirers thinking through in
205、tegration implications,including how long integration will take,what it will cost to achieve,as well as who to engage in the process.The best companies identify the critical issues that underpin the value and build an early integration thesis.They strive to be realistic about costs to achieve,buildi
206、ng estimates into the financial model and setting aside the requisite funds solely for the intended integration purposes.Unfortunately,this area of diligence is one that frequently falls short.In fact,our recent M&A practitioners survey found that the integration roadmap was the most underdeveloped
207、aspect of diligence(see Figure 2).One helpful solution is to engage leaders who have led prior integrations in the deal process,especially if they focused on synergy valuation and timing.Ideally,these companies sign one of them up to lead the integration during diligence and have them weigh in on th
208、e deal thesis/financial model along the way.Figure 2:The most inaccurate areas of diligence are integration roadmaps,revenue synergies,and people issuesSource:Bain M&A Practitioners 2023 Outlook SurveyOver the past three years,how often were the following estimates meaningfully inaccurate during the
209、 due diligence process?Please rate them on a scale from 1(almost never inaccurate)to 5(almost always inaccurate).01020304050%Percentage rating 4 or 5 Environmental,social,and governancerisks or value captureStrategic fitOperations and supply chain benefitsTechnology,IT risk,and cybersecurityrisksCos
210、t synergiesCombined target operating modelTalent quality and retentionCultural alignment and integrationRevenue synergies and go to marketOverall integration roadmap34Global M&A Report 2023In a recent diligence,an alcoholic beverage company focused primarily on the market fundamentals,brand health,a
211、nd synergies.It became apparent during the process,however,that the target had a very different culture and ways of working(see“How to Avoid the Fault Lines Sending Tremors through Cultural Integration in M&A”).The company quickly focused resources on culture integration and change management to ant
212、icipate key friction points and prioritize integration considerations,which then were connected back to synergy values based on what areas of the business would or would not be combined.To integrate cultures,a key decision was made to bring together leadership from different regions into a single he
213、adquarters.Past recessions have been shown to be pivotal times for companies.Our long-term research proves that proactive dealmakers are more likely to emerge from downturns as winners.But in the race to make bold moves,companies need to not only invest in the diligence process but also use the dili
214、gence process to outpace the competition.35Its possible to predict the ways in which cultural differences can upend a promising deal.By Marc Berman,Erin Gillman,Sinead Mullen,and Scott NancarrowHot TopicsHow to Avoid the Fault Lines Sending Tremors through Cultural Integration in M&AAt a Glance Diff
215、iculty with integrating the cultures of merging companies is one of the most common factors contributing to failed M&A.Although there are countless potential cultural differences in an integration,a smaller set of identifiable fault lines causes the most disruptive frictions.Companies need a systema
216、tic plan for addressing differences,with a clear,actionable approach to ensure successful integration.Cultural integration is hard.In Bains M&A Practitioners 2023 Outlook Survey,nearly half of the respondents listed cultural fit or difficulty integrating management teams as a primary reason why thei
217、r past deals had failed.Todays workplace dynamics have made the joining of cultures even more difficult for several reasons.For many,the recent shift to remote work environments limits personal interactions and amplifies the differences that teams encounter when theyre working face-to-face.On top of
218、 this,a companys purpose and values have become more important to employees,with specific concerns rising regarding an employers positions and actions on social and political issuesand merging 36Global M&A Report 2023Figure 1:Although culture is an early focus area for 80%of integrations,most acquir
219、ers still struggle with cultural issues that require serious interventions Source:Bain M&A Practitioners 2023 Outlook Survey80%of integrations address culture at or before the start of the diligence processHow early in the deal-making process do companies assess cultural fit?N/A,no cultural assessme
220、ntAt deal closing/during integrationAfter beginning diligence and before deal signingHigh impacts,including reduced value or failure of the dealAt the beginning of due diligenceMedium impacts,including changes to deal timing or personnelBefore due diligenceFew or no impacts on integrationHow much im
221、pact have difficult cultural issues had on deal outcomes?75%of integrations still have cultural issues that lead to program delays,personnel changes,or worse0100%0100%8060402080604020companies dont always see eye to eye.We also see critical talent more willing to look elsewhere becoming a key risk f
222、or scope and capability deals.Finally,regulatory review sometimes extends the pre-close period,creating a sense of limbo that leaves key talent uncertain about staying.Our M&A practitioners survey found that while culture is an early focus area for 80%of integrations,75%of acquirers still struggle w
223、ith cultural issues that require serious interventions(see Figure 1).Three steps to successful cultural integrationCan companies overcome these challenges plus the many familiar obstacles to cultural integration?The answer is yes,but doing so requires companies to focus on the specific issues most l
224、ikely to disrupt the integration rather than the broader cultural landscape,which could take years to address.We call these specific issues“cultural fault lines,”which,similar to fault lines between tectonic plates,cause foreseeable,frequent,and disruptive frictions when and where they collide (see
225、Figure 2).There are three common types of cultural fault lines in merger integrations:differences in purpose,differences in decision making,and differences in engagement.Many integrators push forward without addressing these fault lines directly,but doing so creates frustration and resentment that t
226、axes every interaction,creating setbacks that either seriously delay integration,drive away talent,or lower the odds of a deals ultimate success.37Global M&A Report 2023We see three steps companies can take to navigate cultural fault lines in any integration.Step No.1:Identify and mitigate the innat
227、e fault lines most likely to cause integration disruptions.Among the countless differences across companies,certain types are more likely to create integration difficulties:differences between the underlying purposes and values that guide each merging company (beyond the written mission statement);d
228、ifferences between the expectations and processes for decision making,which typically reflect deeply rooted norms on data,risk,and power;and differences between working styles on how to interact to accomplish goals,along with the expectations each company has for employee engagement.These fault line
229、s are the most difficult and most important to address in an integration setting.If unaddressed,teams feel like they are talking past each other,ultimately stalling progress,and can drive away critical talentsometimes taking their team with them.Figure 2:Focus your integration efforts on cultural fa
230、ult lines Values and purpose:Our philosophies and objectives are so different that we dont understand each other Decision making:We use different processes and standards to come to a conclusion Ways of working:How we engage,our expectations of each other,and what we celebrate vary widelyFault linesR
231、esults Diagnose which fault lines are active and a threat to the integration Make intentional choices about which approach to follow while working together Use the integration management office as a test-and-learn laboratory to see what needs adjustment Teams recognize that their cultural difference
232、s do not necessarily reflect differences in talent or effort Companies experience less internal conflict and better talent retention for roles that cross cultures Companies build a better foundation for long-term working relationships and make joint progress toward goalsWhat to do about itSource:Bai
233、n&Company38Global M&A Report 2023Identifying innate fault lines starts with looking for relevant differences during due diligence and continues throughout the pre-close period.Leaders who pinpoint these fault lines can help teams tackle them directly and realize that the issues are cultural and not
234、personal before divisions become too great and limit the deals success.When two professional services firms in the same field integrated,they were surprised by how differently they approached decision making.Although both saw themselves as collaborative,the acquirer lived that value by teaming indiv
235、idually with clients to make careful decisions only after securing broad consensus.The acquired company was more accustomed to solving urgent problems of financial distress by getting vital players in the room to make hard choices fast.These innate differences,shaped by the diverse portfolios of cli
236、ents that they served,meant it was important to establish norms for the integration teams to use and to be clear that the more consensus-driven approach was an intentional,well-considered change vs.how the acquired company was accustomed to operating.Doing so helped take blame,confusion,and frustrat
237、ion out of the process and made it clear that this was a cultural(not personal)approach within the new parent company.Identifying innate fault lines starts with looking for relevant differences during due diligence.In an integration of two technology companies,a sticking point about benefits reveale
238、d a potential fault line on values.Although both companies had generous benefits packages,the acquired companys package was truly exceptional in its generosity.The acquirer saw reducing these down to be in line with its own benefits(still well above average for the industry)as a potential source of
239、value,but every employee conversation seemed to gravitate back to the benefits package.The acquirer realized that the targets benefits package was actually central to its identity;its conception of environmental,social,and corporate governance;and a part of how it sold its external brand.It was also
240、 clear that there was a lot to lose on culture and critical talent by picking a fight on the issue.The company created momentum for the integration when it announced that,instead of reducing the targets generous benefits,it would be extending those benefits to all employees as one of many steps in p
241、reserving and expanding its unique culture.The best companies identify fault lines as part of diligence,assessing the degree of difficulty and potential impact to the value of the deal.They evaluate the ownership structure as well as how the company creates and measures value;they also consider outs
242、ide-in data on employee engagement 39Global M&A Report 2023and company priorities,historical norms ingrained over decades,and other factors.Although it may sound extreme to walk away from a deal over innate cultural issues,that may be the best move for companies that dont invest in a mitigation plan
243、.Step No.2:Act before misperceptions deepen the fault lines.Misperceptions can be a major obstacle to integrating teams.Teams that start with misperceptions of the other side(“they are arrogant”)may incorrectly reinforce them during the many ambiguous situations common to integrations(“theyre never
244、available to meet live”).If not addressed early,these misperceptions will be cemented and create huge rifts.Integrators must surface misperceptions early,and quickly create opportunities for teams to interact and demonstrate how they are inaccurate.The acquiring company team was blunt,with one asser
245、ting,“You see us as old white dudes.”In a large software integration,there were clear differences between the leadership teams.The smaller,acquired company was passionate about issues of race,gender,and equal voice,and the composition of its leadership team reflected these priorities.But,at first gl
246、ance,the acquirers leadership team didnt look like they had the same priorities regarding diversity,equity,and inclusion(DEI).There were troubling undercurrents until the companies held a perceptions workshop in which both teams were able to get the issue on the table.In the first exercise,each team
247、 separately wrote their perceptions of the other team and what they thought the other team perceived in them.The acquired company team raised the issue politely,while the acquirer team was more blunt,with one asserting,“You see us as old white dudes.”The acquirer CEO was able to handle this masterfu
248、lly by simply acknowledging the gap:“Youre way ahead of us,and we cant wait to learn from you,”he said.By acknowledging the difference,he was able to demonstrate authenticity and win over the other side while also dispelling the false perception that only one side cared about diversity.The acquirer
249、companys leadership committed to being open about issues of representation and to take the lead from the acquired company,while also empowering both sides to talk about the issue without fear or awkwardness.In this example,a situation that could have created a barrier to integration instead became a
250、 way for the leadership team to gain new credibility by embracing DEI efforts.40Global M&A Report 2023How to surface perceived fault lines?Use the right kind of surveys and interviews early(well before close)that allow for the sharing of unfiltered views about the other companyits culture,skills,geo
251、graphic differences,demographic differences,and priorities based on its reputation or interactions the companies had prior to integration.Talk about it.Foster dialogue.Blow up the myths.That means discussing perceptions head-on,ideally in the supportive environment of a workshop.Comparing how we per
252、ceive ourselves,how we perceive the other side,and how we think the other side perceives us opens the dialogue and enables teams to move past the wrong ideas that can be debunked by working together.Step No.3:Use the integration itself to foster cultural alignment and mend fault lines.Integrations a
253、re moments of truth that can either advance how teams work together or destroy credibility.Success requires building alignment among the leaders who will carry messages to their teams and ensuring they project that alignment.Ideally,they use the integration to role model the new culture and help the
254、 teams move forward.The trouble is that integrations often aggravate fault lines.All integrations create stress for teams,both in terms of additional work and unanswered questions about how their jobs will change or if they even continue.Certain elements and messages are more highly charged and,if n
255、ot managed well,can lead to resentment and cultural conflicts.These self-inflicted wounds often result from insufficient planning and a basic lack of insight into the potential impact.For example,communications that are late,ambiguous,or absent will cause teams to assume the worst.Integration team p
256、lanning,if not inclusive,may favor certain teams or fail to build strong relationships.And actions that are inconsistent with previous messaging create mistrust.What to do about it?Invest more integration effort into crucial moments of truth for employees.This spans integration activities but is esp
257、ecially true for communications that set the tone for the integration.Follow through with consistent actions.Also important:Use the integration as a culture lab to test and learn which cultural choices and adaptations will work best for the combined company.When two trade service providers merged,le
258、adership chose to prioritize one culture and move all employees over to it.To accelerate the assimilation,every manager from the company being assimilated was fast-tracked through the other companys leadership training.The companies created a group of integration ambassadors that became a sounding b
259、oard for the field.In addition to engaging the newly trained leaders,it provided the integration team with a vital source of information(which included its blind spots)in areas such as IT integration and synergies.This was information that integration planners likely would never be able to get from
260、a survey.41Global M&A Report 2023Integration is also an opportunity to use the integration management office as a laboratory to test and learn how to work through issues together before the broader team faces them on day one.This can include mitigations such as agreeing to explicit decision-making n
261、orms and reminding teams of the desired attitude toward risk and stretch goals when target setting.Not all integrations present the same number of cultural fault lines and extent of risk.And many companies can muscle through with only the limited insights from traditional assessments.That approach,h
262、owever,typically makes the entire process of integration harder.Unaddressed innate cultural fault lines and misperceptions as well as integration missteps result in slowed progress and diminished work quality.The traditional approach may require years(and sometimes several personnel changes)before t
263、eams are working with pre-integration efficiency and satisfaction.The best integrators address fault lines early.Those that wait until teams are openly complaining have a much larger problem to solveand less credibility with which to solve it.IndustriesM&A in Aerospace and Defense:New Types of Deals
264、 in a Dynamic Industry .45M&A in Automotive and Mobility:Finding Alternative Routes to the Future .50What Consumer Goods Companies Are Learning from Alternative Deals .55Retails New M&A Balancing Act.60M&A in Diversified Industrials:ESG Plays Drive Breakthrough Capabilities .65M&A in Energy and Natu
265、ral Resources:Beating the Odds in Energy Transition Deals .69M&A in Banking:Three Types of Deals for 2023 .75M&A in Insurance:There Are Insurtech Deals to Be Done,but Proceed with Caution .79IndustriesM&A in Payments:Four Ways That M&A Will Propel This Dynamic Sector .84 M&A in Wealth and Asset Mana
266、gement:How Deals Will Shake Up the Industry .88M&A in Healthcare and Life Sciences:Why the Industrys Wait-and-See Days Will End .93M&A in Media and Entertainment:To Interactivity and Beyond .93M&A in Technology:Never Waste a Good Crisis .102M&A in Telecommunications:How the End of Free Money Opens U
267、p New Opportunities .10645With defense missions and commercial flight markets being disrupted,historic leaders risk losing portions of their profit pools if they dont react.By Clark Herndon,Mike Sion,and Austin KimIndustriesM&A in Aerospace and Defense:New Types of Deals in a Dynamic IndustryAt a Gl
268、ance With challenges to volume and margins,commercial aviation profit pools have been under pressure.Despite relative stability in the defense market,budgets still face a crowding-out effect from inflation,sustainment needs,and competing fiscal priorities.Companies in both commercial aviation and de
269、fense will pursue deals to diversify or consolidate.We anticipate private capital to participate more(less antitrust risk,substantial dry powder),seeking out pockets of undermanagement and stable/growing volumes.For years,aerospace and defense(A&D)was a relatively stable industry with steady air tra
270、vel penetration growth,long-term increases in defense budgets,and long-duration programs.Now,executives and investors face new strategic questions as the industry changes due to the lasting impact of the Covid-19 pandemic,macroeconomic and geopolitical uncertainties,and technological and regulatory
271、disruptions.Companies must confront disruption,consider diversifying exposure,and grow volume and scale within an environment of lower volumes and margin pressure.M&A is likely to be a key tool many employ to achieve these objectives.46Global M&A Report 2023As commercial aerospace rose above the mos
272、t acute pandemic clouds,it emerged into a less-than-hospitable macro environment.Chinas recovery has been uneven at best.In Europe,environmental,social,and corporate governance pressures and potential regulation stand to intensify air travel headwinds.Worldwide,pilot shortages are creating a bottlen
273、eck.These and other changes hurt volumes at a time when margins are already feeling the impact of cost inflation and the growth of risk-transfer products such as power-by-the-hour maintenance.Commercial aviation profit pools have been under pressure(see Figure 1).Conversely,the defense market has be
274、en relatively stable throughout Covid-19,and changes in the geopolitical environment along with lower levels of fiscal constraint have led to volume and budget tailwinds.Prepayments and government support helped stabilize the supply base during pandemic closures and supply chain disruptions.Russias
275、invasion of Ukraine has increased spending commitments in Europe,and rising competition with China has the US and close allies(particularly Japan,South Korea,and Australia)shifting their spending priorities and increasing total spending.These countries are collectively building their own defense cap
276、abilities and deterrents,which will diversify what has been a US-oriented market.Using military aircraft suppliers as a proxy for the broader industry,profit pools have been much more stable as a result of these trends(see Figure 2).Figure 1:Commercial aviation profit pools have been severely affect
277、ed by the pandemicNotes:OEM=original equipment manufacturer;public company financials used to estimate margins at the business segment level;aftermarket/maintenance,repair,and overhaul businesses kept in other categories unless explicitly split as reported segment;Tier 1 and Tier 2/3 overall sizing
278、estimated based on overall OEM engine and OEM airframe total sizeSources:S&P Capital IQ;IATA;Bain analysisPreCovid-19 Covid-19s effectEarnings before interest and taxes margin percentage(20172019)05101520%Tier 2/31714146Airlines8Maintenance,repair,and overhaulTier 1OEM engineOEM airframeEarnings bef
279、ore interest and taxes margin percentage(20202021)01020%2010AirlinesMaintenance,repair,and overhaulTier 1OEM engineOEM airframeTier 2/31449923311Dropped from 9%in20172018 becauseof Boeing 737 MAXgroundingGreaterresilience insupplier basebecause ofdiversification47Figure 2:Defense aircraft profit poo
280、ls have remained relatively stableNotes:2022 data is annualized for each company;some company financials may include nonmilitary/defense or nonaircraft data because of the lack of publiclyavailable information;preCovid-19 data for primes has been collected from 2015 to 2019 to account for abnormal b
281、usiness events;sustainment/maintenance,repair,and overhaul market size includes only labor cost but is not military or defense specificSources:S&P Capital IQ;Airframer;Forecaster International;Bain analysisPreCovid-19Covid-19s effectEarnings before interest and taxes margin percentage(20212022)51517
282、620%048121620%Earnings before interest and taxes margin percentage(20182019)716141416 7Airframe/structuresEngineElectricalSustainment/maintenance,repair,and overhaulAvionics/mission systemsMechanicalAirframe/structuresEngineElectricalSustainment/maintenance,repair,and overhaulAvionics/mis
283、sion systemsMechanicalGlobal M&A Report 2023The shift to near-peer competition in the defense market has broader implications for the supply base.Requirements are growing,but budgets still face a crowding-out effect from inflation,sustainment needs,and competing governmental fiscal priorities.A macr
284、oeconomic downturn would likely exacerbate this disconnect between requirements and funding.The challenge for primes and suppliers is to meet demand for new capabilities in areas where commercial innovation and foreign spending are outpacing government investmentfor example,cyber,autonomy,artificial
285、 intelligence,computing,and connectivity.Companies with exposure to these markets will find meaningful tailwinds,though they will also see competitive pressure from commercial players with innovative solutions that government buyers are increasingly willing to purchase.We see several important M&A t
286、rends as companies and financial investors navigate the marketplace.Platform/segment diversification:Financial and strategic acquirers alike will continue to turn to M&A to diversify in attractive segments in commercial aviation(e.g.,narrowbody,next-generation engines)and stable/growing segments in
287、defense(e.g.,major programs of record,advanced mission systems).48Global M&A Report 2023 Defense adjacency growth/capability acquisitions:Companies in the defense industry will look to buy or partner for the capabilities they need to compete in nascent,high-growth markets.That was the reported objec
288、tive of Raytheon Technologies acquisition of Blue Canyon in 2020 and SEAKR Engineering in 2021 in the space market as well as L3Harriss 2022 purchase of Viasats tactical data links.We will see continued deals and partnerships seeking to benefit from faster time to market and lower development costs.
289、Commercial value chain consolidation:Scale matters in the aerospace supply chain,and consolidation is likely in segments that are fragmented despite benefits to site-or company-level scale.The recently announced Paradigm Precision and Whitcraft deal is a good example of this trend,and it is reasonab
290、le to expect further activity in Tiers 2 and 3.Another likely area of consolidation is maintenance,repair,and overhaul(MRO),which is fragmented today despite customer and operational benefits to site-level scale.Consolidation in maturing markets:As nascent defense and commercial markets continue to
291、grow,we expect to see consolidation as winners and losers emerge in crowded and highly competitive markets.For example,with space launch frequency increasing,vehicles and services will become more commoditized and smaller players will look for scale deals to lower costs and preserve margins.Given th
292、ese trends,M&A is likely to be a critical tool in A&D in 2023 and beyond.We expect some activity in prime contracting/original equipment manufacturers and Tier 1 players(for example,L3Harriss recent announcement of an agreement to acquire Aerojet Rocketdyne),although dealmaking is likely to be more
293、muted vs.the past few decades because the degree of consolidation that regulators will permit remains an open question.We also expect more deals further down the supply chain,where margins can be attractive and there is fragmentation despite benefits to scale.And private capital will likely increase
294、 its participation in the sector,in line with recent trends.We expect more activity from both generalist funds as well as those that have traditionally focused on the sector.Private equity has less antitrust risk,substantial dry powder to invest,and is likely to seek out pockets of undermanagement a
295、nd stable or growing volumes.And the industry has some fundamental traits that financial investors likefor example,enduring customer relationships,high backlog visibility,and stable cash flows.But not all investments will be winners.Below are the factors that can boost the odds of a successful deal.
296、Diversified exposure across platforms,programs,geographies:Recent disruptions caused by Covid-19 highlighted the advantages of diversified exposure.But the act of buying a company just to diversify wont work unless there is a distinct parenting advantagethe acquirer wont be able to justify the deal
297、competitions high multiple.Companies must have a clear deal thesis tied to a specific parenting advantage that unlocks value.49Global M&A Report 2023 Exposure to narrowbody(commercial)and large programs of record such as the F-35 (defense):Backlogs are large and stable in major narrowbody and defens
298、e programs of record(e.g.,Airbuss A320,CFMs LEAP,Pratt&Whitneys PW1000 and F135,Lockheed-Martins F-35,and Northrop Grummans B-21);companies with exposure to these programs will tend to have scale advantages,higher margins,and more cash to reinvest in next-generation technologies.Defensible intellect
299、ual property(IP):Suppliers that own critical design IP will continue to have an advantage and are more attractive targets,demanding higher multiples compared with contract manufacturers.Proprietary components and systems tend to generate higher margins,both in production and in the aftermarket.Opera
300、tional excellence:Operational excellence is the differentiator in this industry and a key to margin expansion,particularly with long-running programs.Yet acquirers need to ensure that the operations expertise is fit for the mission.Some programs maintain low rates for long periods of time,and others
301、 benefit from high-rate production expertise that drives out cost through scale.M&A/integration as a capability:The most successful acquirers in any industry are those that repeatably drive value and growth from acquisitions.From due diligence through to post-merger integration,a sound M&A strategy
302、and execution capabilities that are disciplined and thesis focused are critical.M&A can be a valuable tool for diversification and access to new capabilities in aerospace and defense.For example,more diverse end-market exposure can help stabilize earnings and expose companies to higher growth segmen
303、ts(such as commercial narrowbody aircraft and major defense programs of record).In industries characterized by long program durations and sticky customer relationships,M&A can be a critical growth lever.And disruptions in both markets make acquisitions that deliver new capabilities to improve defens
304、ibility in a companys core potentially attractive.For all of these reasons,winning aerospace and defense companies will develop focused,tailored investment theses that support and reinforce their broader corporate strategiesand pursue acquisitions that strengthen resilience and add value.50Companies
305、 that make the right deal decisions now can massively benefit over the long haul.By Dominik Foucar,Klaus Stricker,Ingo Stein,Ping Yi,and Pedro CorreaIndustriesM&A in Automotive and Mobility:Finding Alternative Routes to the FutureAt a Glance Real customer focus,autonomous driving,connected and digit
306、ized vehicles,electric powertrains,and shared mobility will define the industrys future.With stakes so high,substantial capital requirements,and the need to speed up R&D,teaming is helping companies to advance after years of many going it alone.Access to financing has tightened,so cash-rich original
307、 equipment manufacturers,major suppliers,and tech companies will account for most of traditional M&A.During this decisive time,anything is possibleand necessary.The automotive and mobility industry is advancing in different directions as part of a full value chain transformation,and companies are st
308、eaming ahead to deliver what we call the“5 Races”:Real customer focus;Autonomous driving;51Global M&A Report 2023Some companies are making electric vehicle adjacency moves,seeking out new profit pools and critical technology control points.Connectivity and digitization of vehicles;Electrification of
309、 powertrains;and Shared mobility.The changes required to compete in the 5 Races are so broad and dramatic that companies will benefit by not going it alone.On this path,leading companies are quickly leveraging the full array of M&A.That means both traditional acquisitions and mergers,as well as a gr
310、owing mix of alternative deals.Original equipment manufacturers(OEMs),suppliers,technology companies,and mobility players are forging alliances and partnerships,spinning out divisions,and investing in corporate venture capital(CVC)to get a head start on technology development.Anything is possible(an
311、d necessary)depending on a companys strategy.Lets look at the range of activities and the strategies behind them.Legacy internal combustion engine component suppliers are consolidatingthat is,when regulatory constraints and the ability to implement harvest strategies allow.In partially commoditizing
312、 segments,such as lighting,for example,companies can stay profitable from scale synergies and harvest cash to fund the development of next-generation products or build up new engines of growth.Plastic Omnium acquired AMLS and Varroc Lighting Systems to integrate lighting and provide a differentiated
313、 offer that meets the growing demands of OEMs,for example.In some areas of the industry,companies are making electric vehicle(EV)adjacency moves,seeking out new profit pools and critical technology control points.This requires not only evaluating what to buy but also how to integrate a new asset.In
314、some cases,such as in EV batteries,the minimum scale needed to play is too large and risky for one player,and many are turning to partnerships.Consider the strategic partnership that allowed British company GKN Automotive to move into the e-drives business:GKN is contributing its expertise in engine
315、s and transmissions,while Delta Electronics,based in Taiwan,is manufacturing the power electronics.52Global M&A Report 2023Figure 1:M&A activity dipped slightly in 2022,with a first-half surge in deal value giving way to significant contraction in the third quarterNotes:2019 includes Stellantis deal
316、;deals classified by rationale using a proprietary classification framework,as per stated strategic rationale at the time of dealannouncement;numbers may not sum due to rounding Sources:Dealogic;Bain analysisDeal value(in billions of US dollars)SupplierTechnologyDealerOriginal equipment manufacturer
317、Deal count72995532589855383869491925Dip induced by Covid-19 and chip shortage21H120223011H120211910Q32022320216432Q1Q320224436Q32025020675208Companies from Ford to Harl
318、ey-Davidson are also separating electric vehicle assets to get share price appreciation and to access growth capital for the business.That was the objective of Ampere,Renaults new standalone company for its EV and software activities.The spin-off will allow the company to get better valuation and ac
319、cess to capital,attract talent,and have better focused teams.Renault has carved out its internal combustion engine business to build a 50/50 company with Geely that will be a worldwide automotive supplier producing combustion and hybrid propulsion engines and targeting an annual revenue of 15 billio
320、n per year.The intent is to share maintenance and R&D costs,rationalize capacity,and tap the slower-to-decline Chinese market.Its not as if automotive and mobility companies arent engaging in traditional M&A.Similar to their counterparts in other industries,auto companies put deals on pause during C
321、ovid-19plagued 2020.Activity resumed in 2021,a comeback year that saw 64 deals worth a total of$53 billion.Then 2022 brought with it a host of new economic challenges.Overall,deal volume dropped slightly during the first nine months of 2022 compared with the same period a year earlier,with a strong
322、first half that cooled off in the early weeks of the third quarter(see Figure 1).While some scale deals were announced,the majority of the activity,73%,represented scope deals(see Figure 2).Figure 2:Over the past five years,expanding scope has been the major impetus for strategic M&A deals in the in
323、dustryNote:Deals classified by rationale using a proprietary classification framework,as per stated strategic rationale at the time of deal announcementSources:Dealogic;Bain analysisStrategic deals with greater than$100 million in deal valueQ1Q3 202227%73%202133%67%202031%69%201939%61%201845%55%2017
324、45%55%201666%34%Percentage of scale dealsPercentage of scope deals201555%45%53Global M&A Report 2023But across the value chain,from suppliers to OEMs to technology companies to dealers,the industry is finding that partnerships can be a suitable option,depending on the situation.For example,joint ven
325、tures can be a first step toward reining in noncore assets and sharing risks.Alliances can enable purchasing to cope with increasing market pressures from material costs.Cost synergies,benefiting both companies,have been a key objective of Hino and Tratons procurement agreement.These alternatives to
326、 traditional acquisitions are less binding and can be easier and quicker to set up.They also come with limitations.Among the most important potential shortcoming:a lack of control.In areas with high technology uncertainty and where heavy investments are required,such as autonomous driving,companies
327、are finding that participating in CVC can help them secure early access to technology and accelerate development.Going forward,we expect the number of M&A deals to continue increasing,though likely with a smaller average deal value.As access to financing has tightened with rising interest rates,cash
328、-rich OEMs,major suppliers,and tech companies are expected to account for the largest share of acquisitions.These players see it as a good time to strengthen themselves even more,and there will be affordable targets in the form of companies looking to divest to focus on a core business or revitalize
329、 capital structures.Market turbulence will result in more companies falling into distress and becoming potential targets.54Global M&A Report 2023This is a decisive time,and companies that make the right decisions now can massively benefit over the long haul.To succeed in this new M&A game,automotive
330、 and mobility players must reinforce their M&A capabilities,adjust structures and processes,and build up resources and capabilities for CVC.Five important areas will help ensure M&A success:Embed M&A in corporate strategy,and take a thorough future-back view of your portfolio.Broaden your screening,
331、including early detection systems and investment opportunities via a venture capital approach.Expand your M&A toolkit,tailoring the tools and approaches you use to the situation,including strategic divestments,spin-offs to drive valuation,and alternative partnering options.Improve your commercial di
332、ligence skill set and integration capabilities,particularly for evaluating adjacency moves and partnerships.Capture the full potential,which,in some cases,will be heavily focused on managing down costs and capital employed;in other situations,it will mean taking on the marketing of acquired software
333、 or hardware from the smaller company,preserving the core of an acquired business.55As more companies try corporate venture capital deals and alliances,theyre also learning how to avoid the pitfalls.By Peter Horsley,Joost Spits,Sam Rovit,and Maria KurenovaIndustriesWhat Consumer Goods Companies Are Learning from Alternative DealsAt a Glance Our survey found that a vast majority of consumer goods c