Value creation: Laying the foundation for mergers and acquisitions

Aug 31, 2018

There are numerous qualitative factors which drive M&A; however, very often, the question that is asked is, does M&A really create value? And if not, then why do we see such sequential growth in levels of M&A activity?

To answer the question, one needs to assess what ‘value’ means—it could mean different things for various stakeholders across the ecosystem, but is there one outcome at which there is value convergence amongst all constituents? Then, quite certainly, not all attempts at value creation would be successful, but is there a class of acquirers which has been more successful than others, and if so, why? Is it simply because of the growth that their respective sectors are experiencing, or is the value creation a result of the diligent execution of the M&A process?

We live in a volatile, uncertain, complex and ambiguous world, and it will continue to become more so. This only means that what may seem right today may not be so tomorrow. These observations also apply to any pre-investment appraisal process, which has accordingly seen a significant jump in the intensity of efforts in recent times. But, is this enough, or even after doing this well, can we still lose value?

Over the years, many studies have shown that winning a bid for an asset is not the end, but just the first step towards goal of creating value. Studies also show that not many deals actually create value. That being the case, what is the recipe for value creation? Is there any relevance to what the acquirer communicates on Day 1, or what it does over the first 100 days, or is all this overhyped?

This report aims to provide answers to some of the above questions.

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