M&A and Strategic Change
Dr Robert Davies, in his fascinating blog on strategy (see weblink at the bottom of this page in the blogroll or check it out here), has written an interesting article on what he sees as the eight major issues that will drive corporate strategy and behaviour over the next several years (see his blog: ‘2010 AND BEYOND: The real issues and trends‘).
These issues range from the drive toward localisation (and away from globalisation) to the increase in stress in society (and on individuals). It certainly is worthwhile considering whether these will impact the M&A market if several of these actually do turn out to be correct. Briefly, the eight issues are (in Robert’s very conversational and catchy style):
- ISSUE #1: GOODBYE GLOBALISATION, HELLO LOCALISATION. There are too many forces pushing against globalisation for you to bet on the end of history and a harmonised world. Even academics are divided upon the issue of the sustainability of a single global society. Remember too that we have not suffered a global recession, we are in the midst of a series of localised depressions, recessions, recoveries or in some cases, just mere slowdowns.
- ISSUE #2: CHANGE COMES IN PHASES. Unlike some, I don’t see a simple ‘bounce back’. The real effects of the recession in terms of your markets and the behaviours of your customers will take between three to five years to appear. Understanding and monitoring four key phases of change must be a central task for any customer focused organisation.
- ISSUE #3: FROM LUXURY TO SECURITY. FROM CONSUMERISM TO REPLETION. Customer needs (both in consumer and business markets) will change. How they change will largely be determined by the direction taken by globalisation. For some, purely Web based customer management strategies may prove problematic in at least one future new where new consumers seek more personal inter-action.
- ISSUE #4: BIG BROTHER, MY FRIEND. Some large corporate brands have been tarnished – especially in the financial sector. There is some emerging evidence that new consumers may trust central government more than large corporates.
- ISSUE #5: CSR – A NEW GENERIC STRATEGY? In the face of new regulation, many especially in financial services, will find it difficult to gain competitive advantage. Is corporate social responsibility the answer?
- ISSUE #6: BACK TO THE PAST – THE FRUITS OF CREATIVE DESTRUCTION. Within all the doom and gloom there is the prospect of quite massive levels of innovation, bringing with it opportunity. But you may have to move quickly. So, in what shape are you to innovate?
- ISSUE #7: THE DEATH OF ‘WHAT WORKED BEFORE’. Be careful about extrapolating from the past. The datasets and variables have changed.
- ISSUE#8: BEWARE OF STRESS. It’s going to take time to get through this. So are you taking care of your staff?
Now, what does this imply for those who are interested in M&A? Could these issues be influencers on M&A generally? (Actually, think about these as ‘trends’, which they areally are (aren’t they?), as most have already begun in some fashion and even have antecedents from years ago.
I’d be interested in the views of others, but first let me say that I agree with most of these issues — especially their application to the next several years. On a longer-term basis, I do believe we’ll find ourselves largely back on the same trajectory that we’ve been for the past two or three decades and that the past 18 months won’t be considered quite the sea change that many other pundits believe.
Nevertheless, these issues will impact the M&A market. Some positively:
- Localisation means that there’s a greater need for local presence, which can be obtained by purchasing a local company already knowledgeable about the local markets and recognisable to the people there.
- Creative destruction will drive the purchase of distressed and bankrupt (or insolvent) companies. (See as well the M&A discussion of distressed deals.)
- It may be easier to have an appreciated impact on CSR issues if the organisation is large and able to afford high-impact, high-cost CSR programmes. How do companies get scale? They go out and buy another company…
But others negatively, such as the ‘big brother’ trend of increased trust in governments which implies lower trust in corporations, especially the largest ones. (But the flip side of this may be increased M&A activity as companies downsize and refocus back to the core, thus divesting divisions: one company’s sale is another company’s acquisition!).
We’ve discussed before the need to incorporate appropriate business intelligence into the M&A process, which otherwise often seems opportunistic at best and ‘me-too’ at worst. These trends discussed by Robert in his blog should be used by all M&A corporate development teams and their advisors in stress-testing their proposed mergers and acquisitions. (See our writings on scenario planning as well.)
Your thoughts?
Intelligent Mergers 
Localisation is definitely a big trend. International players bound to lose when well connected local companies learn to provide a similar quality service, cost effectively. This is a clear trend in Central Europe, where post EU accession, the region’s emerging market exoticism is giving place to “peripherisation”. While international investors lose interest, local players reach maturity and take control of whole business segments. Legal and M&A advisory are prime examples. http://mahungary.wordpress.com.
Préda István
Monday, 30 November 2009