Creating Value with M&A in Downturns

Creating Value with M&A in Downturns

          
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Creating Value with M&A in Downturns

The Return of the Strategist
Corporate Development & Finance, Management in a Two-Speed Economy
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    The recent cooling of the mergers and acquisitions (M&A) market in the wake of the credit crunch has sparked media speculation that the market is about to enter a deep freeze. Commentators’ main concern is that the midyear contraction of the debt market, which initially affected only highly leveraged private-equity (PE) transactions, will turn into a widespread liquidity shock, making funding scarce for moderately financed deals as well. But for the players who matter the most—the buyers and sellers—the key question is not whether deal volumes and values will rise or fall but whether it is still possible to generate value from transactions. As we demonstrate in this, our fourth annual report on M&A, buyers and sellers can create significant value under all economic conditions—including economic downturns.

    In addition to discussing the latest M&A developments and how to create value in downturns, we have placed a special emphasis in this year’s report on corporate divestitures. We have done so for two reasons. First, divestitures have received relatively little attention. Second, there is a possibility that divestitures will increase if there is a global economic downturn.

    Based on an analysis of more than 5,100 divestiture deals—one of the largest studies of its kind—we present the key ingredients of success for buyers and sellers. Many of our insights are founded on new research. Other recommendations draw on previous studies from the BCG M&A Research Center that have stood the test of time.

    However, we have not neglected the broader trends within the M&A market. Some of these trends have important implications for buyers and sellers. The partial retreat of private equity—which is easing pressure on valuation multiples, making deals more attractive—is a case in point. This has created substantial opportunities for corporate—or so-called strategic—buyers, who have returned to reclaim an even greater share of deal value.

    We hope that these and other insights in this report will enable both buyers and sellers to improve their shareholder returns, regardless of the economic climate.

    In this report, we define an economic downturn as a period of below-average GDP growth (less than 3 percent).
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