Masters of the Deal: does M&A create shareholder …s3-eu-west-1.amazonaws.com/papillon-local/uploads/9/18/1...Copyright © Intralinks 2016 All rights reserved 3Does M&A deliver shareholder

Copyright © Intralinks 2016 All rights reserved

Masters of the Deal: does

M&A create shareholder

value? The strategies of

Excellent Corporate Portfolio

Managers

1

James Whitehurst

Associate, Strategy & Product Marketing,

Intralinks

A research study by the M&A

Research Centre at Cass

Business School and Intralinks

Copyright © Intralinks 2016 All rights reserved 2

This document contains information that is proprietary and is the property of Intralinks Inc. It may be used, distributed and reproduced only in its entirety or, if only part of the information contained herein is used, distributed or reproduced elsewhere, then this use, distribution or reproduction must be accompanied by this notice.

Notice


Does M&A deliver shareholder value?

Extensive prior studies showing strong positive effects for

targets and negative effects for acquirers…

…but, previous studies have focused on measuring value

creation from individual deals, not firms’ overall programs

of M&A activity over longer time periods

This study analysed the performance of 25,000+ global

firms and 265,000+ deals over 20 years


Measuring firm performance from M&A

Young

(0 to 3 years)

Medium

(3 to 10 years)

Mature

10 years+

Active

(1-2 deals)

Very active

(3-5 deals)

Extremely

active

(6+ deals)M&A

frequency

per 3 year

rolling

periods

Firm maturity since first public listing

Firm performance = CAGR in

total shareholder return

adjusted by local country

benchmark total return index


Key finding #1: buy while you’re young…

Young firms (during their first three years as public companies) only outperform

the market when they make at least two acquisitions per year

-5.6-6.2 -6.0

-2.4

3.8

All Inactive Active Very active Extremelyactive

An

nu

al

tota

l re

turn

vs

. m

ark

et

(pp

)

Relationship between acquisition frequency and returns for young firms

YOUNG FIRMS

ACQUISITIONS


Key finding #2: as you get older keep

buying…

Medium-aged and mature firms increasingly outperform the market the more

frequently they acquire

0.6%0.2%

1.0%

2.7%

3.4%

All Inactive Active Very active ExtremelyactiveA

nn

ua

l to

tal re

turn

vs

. m

ark

et

(pp

)

Relationship between acquisition frequency and returns for medium-aged and mature firms

OLDER FIRMS

ACQUISITIONS


Key finding #3: careful with that axe…

Medium-aged and mature firms outperform the market when they make a

limited frequency of divestments (1-2 per period)

0.6%0.1%

2.9%

-3.1%-3.8%

All Inactive Active Very active Extremelyactive

An

nu

al

tota

l re

turn

vs

. m

ark

et

(pp

)

Relationship between divestment frequency and returns for medium-aged and mature firms

OLDER FIRMS

DIVESTMENTS


What does excellence from M&A activity

look like?

Definition of “Excellent

Corporate Portfolio Managers”

(ECPMs)

• High level of M&A: at least

one new deal in at least

75% of all periods for

which listed in the study

• High performance: above–

average annual

normalised total

shareholder return in at

least 50% of all periods for

which listed in the study

• 1,469 global ECPMs ~ 6%

of all firms

8

-2%

0%

2%

4%

6%

8%

10%

12%

14%

Average annual total shareholder return vs. market (pp)

Excellent Corporate Portfolio Managers Others


38% 38%

7%0.8%

48%

33%

30%28%

5%0.2%

40%

34%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

All-cash Cross-border Financialsponsor

seller

Hostile Seller public Slow time tocomplete

Avera

ge %

of deal valu

e

Statistically significant deal attributes of ECPMs vs. others - acquisitions


M&A strategies of ECPMs - acquisitions

ECPMs have bolder M&A

strategies, with greater

execution risk - higher

proportion of cross-border and

hostile acquisitions

ECPMs buy more from

financial sponsors (private

equity) and public companies

ECPMs are more likely to use

all-cash consideration for

acquisitions

ECPMs achieve faster deal

completion for acquisitions

9


50%

35%

12%

33%

47%

26%

9%

39%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Buyer public Cross-border Financial sponsorseller

Slow time tocomplete

Avera

ge %

of deal valu

e

Statistically significant deal attributes of ECPMs vs. others - divestments


M&A strategies of ECPMs - divestments

ECPMs exploit a wider range

of strategic options when

selling assets

• Sell more to foreign buyers

- higher proportion of

cross-border deals

• Sell more to financial

sponsors (private equity)

and public company

buyers

ECPMs achieve faster deal

completion for divestments

10


0.18

0.26

0.00

0.05

0.10

0.15

0.20

0.25

0.30

Avera

ge a

cquis

itio

n v

alu

e/s

ale

s o

f acquir

er

Average acquisition value/sales of acquirer*


M&A strategies of ECPMs – acquisition

size

ECPMs undertake smaller

acquisitions, relative to their

own size, than other firms,

avoiding large,

transformational acquisitions

that could pose significant

execution or integration risk

11

*Last 12 months sales prior to year of acquisition


M&A strategies of ECPMs – acquisitions

vs. divestments and market timing

ECPMs make significantly

more acquisitions by value

than divestments compared to

other firms

ECPMs make significant

adjustments to their M&A

strategies to take account of

market conditions and take

advantage of valuation

opportunities

12

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

Acquis

itio

n v

alu

e/d

ivestm

ent

valu

e

Acquisition deal value to divestment deal value ratio of ECPMs vs. other firms


Average = 3.4

Average = 1.0


ECPMs by major country

16%

13%12% 11%

9% 8% 8%7% 7%

3%2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

Percentage of firms by major country which are ECPMs


Commonwealth Bk.

ICAP RatosAccell Eurocash NutrecoAltagas Fugro Lukoil

Amgen Bayer Medtronic Alfa Laval IMI Siemens Citrix EconocomUnited Internet

14

Examples of ECPMs

Full global list of ECPMS at:

https://www.intralinks.com/resources/publications/cass-research-report-masters-deal-part-2


ECPMs by industry sector

15%

11%10%

9%8% 8%

7% 7%6%

5%

0%

2%

4%

6%

8%

10%

12%

14%

16%

Percentage of firms by sector which are ECPMs


Conclusions

If your firm doesn’t have an M&A strategy, you need to get one : M&Ainactivity = underperformance

Buy frequently while you are young: only highly acquisitive young firms outperform

As you get older, keep buying: performance of older firms is positively correlated with acquisition frequency

As you get older, divest occasionally: limited divestment frequency = outperformance

Excellence requires some risk: ECPMs have bolder M&A strategies but avoid large transformational acquisitions

Excellence requires changes in strategy to take advantage of valuation opportunities and respond to market conditions


Questions?Philip Whitchelo

VP Strategy & Product Marketing

Tel: +44 207 5495207

E-mail: [email protected].

17






Appendix

18


Key finding: does performance drive M&A

activity or activity drive performance?

The study finds significant causality links between firms’ performance and M&A

frequency (acquisitions and divestments)…

Better past

performance

Being very

or extremely

active

Future

under-

performance

Poorer past performance

Being

inactiveBeing active

Future

under-

performance

Future out-

performance

or


… which may help to explain the cyclicality of M&A

Poorer performance

No M&A activity

Poorer performance

Increased M&A activity

Better performance

M&A overactivity

Key finding: does performance drive M&A

activity or activity drive performance?

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