M&A

Valuation in Niche Sectors: Using Trading Comparables and Precedent Transactions When No Perfect Peers Exist

by
Ian DI MUZIO

In this article, Ian DI MUZIO (ESSEC Business School, Master in Finance (MiF), 2025–2027) discusses how valuation practitioners use trading comparables and precedent transactions when no truly “perfect” peers exist, and how to build a defensible valuation framework in Mergers & Acquisitions (M&A) for hybrid or niche sectors.

Context and objective

In valuation textbooks, comparable companies and precedent transactions appear straightforward: an analyst selects a sector in a database, obtains a clean peer group, computes an EV/EBITDA range, and applies it to the target. In practice, this situation is rare.

In real M&A mandates, the target often operates at the intersection of several activities (e.g. media intelligence, marketing technology, and consulting), across multiple geographies, with competitors that are mostly private or poorly disclosed.

Practitioners typically rely on databases such as Capital IQ, Refinitiv, PitchBook or Orbis. While these tools are powerful, they often return peer groups that are either too broad (mixing unrelated business models) or too narrow (excluding relevant private competitors). Private peers, even when strategically closest, usually cannot be used directly because they do not publish sufficiently detailed or standardized financial statements.

The objective of this article is therefore to provide an operational framework for valuing companies in such conditions. It explains:

  • What trading comparables and precedent transactions really measure;
  • Why “perfect” peers almost never exist in practice;
  • How to construct and clean a comps set in hybrid sectors;
  • How to use precedent transactions when listed peers are scarce;
  • How to combine these tools with discounted cash-flow (DCF) analysis and professional judgment.

The target reader is a student or junior analyst who already understands the intuition behind EV/EBITDA (enterprise value divided by earnings before interest, taxes, depreciation and amortisation), but wants to understand how experienced deal teams reason when databases do not provide obvious answers.

Trading comparables: what they measure in practice

Trading comparables rely on the idea that listed companies with similar risk, growth and operating characteristics should trade at comparable valuation multiples.

The construction of trading multiples follows three technical steps.

First, equity value is converted into enterprise value (EV):

Enterprise Value = Equity Value + Net Debt + Preferred Equity + Minority Interests – Non-operating Cash and Investments.

This adjustment ensures consistency between the numerator (EV) and the denominator (operating metrics such as EBITDA), which reflect the performance of the entire firm.

Second, the denominator is selected and cleaned. Common denominators include LTM or forward revenue, EBITDA or EBIT. EBITDA is typically adjusted to exclude non-recurring items such as restructuring costs, impairments or exceptional litigation expenses.

Third, analysts interpret the distribution of multiples rather than relying on a simple average. Dispersion reflects differences in growth, margins, business quality and risk. When peers are imperfect, this dispersion becomes a key analytical input.

EV/EBITDA distribution
Figure 1 – Distribution of EV/EBITDA multiples for a selected peer group in the media and marketing technology space. The figure is based on a simulated dataset constructed to mirror typical outputs from Capital IQ and Refinitiv for educational purposes. The target company is positioned within the range based on its growth, margin and risk profile.

Precedent transactions: what trading comps do not capture

Precedent transactions analyse valuation multiples paid in actual M&A deals. While computed in a similar way to trading multiples, they capture additional economic dimensions, as explained below.

Transaction multiples typically include a control premium, as buyers obtain control over strategy and cash flows. They also embed expected synergies and strategic considerations, as well as prevailing credit-market conditions at the time of the deal.

From a technical standpoint, transaction enterprise value is reconstructed at announcement using the offer price, fully diluted shares, and the target’s net debt and minority interests. Careful alignment between balance-sheet data and LTM operating metrics is essential.

Trading vs precedent multiples
Figure 2 – Comparison between trading comparables and precedent transaction multiples (EV/EBITDA). The illustration is based on a simulated historical sample consistent with PitchBook and Capital IQ deal data. Precedent transactions typically trade at higher multiples due to control premia, synergies and financing conditions.

Why perfect peers almost never exist

Teaching in business schools often presents comparables as firms with identical sector, geography, size and growth. In real M&A practice, this situation is exceptional.

Business models are frequently hybrid. A single firm may combine SaaS subscriptions, recurring managed services and project-based consulting, each with different margin structures and risk profiles.

Accounting reporting rules, such as International Financial Reporting Standards (IFRS) or US GAAP, further reduce comparability. Differences in revenue recognition (IFRS 15), lease accounting (IFRS 16) or capitalization of development costs can materially affect reported EBITDA.

Finally, many relevant competitors are private or embedded within larger groups, making transparent comparison impossible.

Building a defensible comps set in hybrid sectors

When similarity is weak, the analysis should begin with a decomposition of the target’s business model. Revenue streams are separated into functional blocks (platform, services, consulting), each benchmarked against the most relevant public proxies.

Peer groups are therefore modular rather than homogeneous. Geographic constraints are relaxed progressively, prioritising business-model similarity over local proximity.

Comps workflow
Figure 3 – Bottom-up workflow for constructing a defensible comps set in niche sectors. The figure illustrates the analytical sequence used by practitioners: business-model decomposition, peer clustering, financial cleaning and positioning within a valuation range.

When comparables fail: the role of DCF

When no meaningful peers exist, discounted cash-flow (DCF) analysis becomes the primary valuation tool.

A DCF estimates firm value by projecting free cash flows and discounting them at the weighted average cost of capital (WACC), which reflects the opportunity cost for both debt and equity investors.

Key valuation drivers include unit economics, operating leverage and realistic assumptions on growth and margins. Sensitivity analysis is essential to reflect uncertainty.

Corporate buyers versus private equity sponsors

Corporate acquirers focus on strategic fit and synergies, while private equity sponsors are constrained by required internal rates of return (IRR) and money-on-money multiples (MOIC).

Despite different objectives, both rely on the same principle: when comparables are imperfect, the narrative behind the multiples matters more than the multiples themselves.

How to communicate limitations effectively

From the analyst’s perspective, the key is transparency. Clearly stating the limitations of the comps set and explaining the analytical choices strengthens credibility rather than weakening conclusions.

Useful resources

Damodaran, A. (NYU), Damodaran Online.

Rosenbaum, J. & Pearl, J. (2013), Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions, Wiley.

Koller, T., Goedhart, M. & Wessels, D. (2020), Valuation: Measuring and Managing the Value of Companies, McKinsey & Company, 7th edition.

About the author

Written in December 2025 by Ian DI MUZIO, ESSEC Business School.

Interest Rates and M&A: How Market Dynamics Shift When Rates Rise or Fall

by
Emanuele BAROLI

In this article, Emanuele BAROLI (MiF 2025–2027, ESSEC Business School) examines how shifts in interest rates shape the M&A market, outlining how deal structures differ when central banks raise versus cut rates.

Context and objective

The purpose is to explain what interest rates are, how they interact with inflation and liquidity, and how these variables shape merger and acquisition (M&A) activity. The intended outcome is an operational lens you can use to read the current monetary cycle and translate it into cost of capital, valuation, financing structure, and execution windows for deals, distinguishing—when useful—between corporate acquirers and private-equity sponsors.

What are interest rates

Interest rates are the intertemporal price of funds. In economic terms they remunerate the deferral of consumption, insure against expected inflation, and compensate for risk. For real decisions the relevant object is the real rate because it governs the trade-off between investing or consuming today versus tomorrow.

Central banks anchor the very short end through the policy rate and the management of system liquidity (reserve remuneration, market operations, balance-sheet policies). Markets then map those signals into the entire yield curve via expectations about future policy settings and required term premia. When liquidity is ample and cheap, risk-free yields and credit spreads tend to compress; when liquidity becomes scarcer or dearer, yields and spreads widen even without a headline change in the policy rate. This transmission, with its usual lags, is the bridge from monetary conditions to firms’ investment choices.

M&A industry — a definition

The M&A industry comprises mergers and acquisitions undertaken by strategic (corporate) acquirers and by financial sponsors. Activity is the joint outcome of several blocks: the cost and elasticity of capital (both debt and equity), expectations about sectoral cash flows, absolute and relative valuations for public and private assets, regulatory and antitrust constraints, and the degree of managerial confidence. Interest rates sit at the center because they enter the denominator of valuation models—through the discount rate—and they shape bankability constraints through the debt service burden. In other words, rates influence both the price a buyer can rationally pay and the feasibility of financing that price.

Use of leverage

Leverage translates a given cash-flow profile into equity returns. In leveraged acquisitions—especially LBOs—the all-in cost of debt is set by a market benchmark (in practice, Term SOFR at three or six months in the U.S., and Euribor in the euro area) plus a spread reflecting credit risk, liquidity, seniority, and the supply–demand balance across channels such as term loans, high-yield bonds, and private credit. That all-in cost determines sustainable leverage, shapes covenant design, and fixes the headroom on metrics like interest coverage and net leverage. It ultimately caps the bid a sponsor can submit while still meeting target returns. Corporate acquirers usually employ more modest leverage, yet remain rate-sensitive because medium-to-long risk-free yields and investment-grade spreads feed both fixed-rate borrowing costs and the WACC used in DCF and accretion tests, and they influence the value of stock consideration in mixed or stock-for-stock deals.

How interest rates impact the M&A industry

The connection from rates to M&A operates through three main channels. The first is valuation: holding cash flows constant, a higher risk-free rate or higher term premia lifts discount rates, lowers present values, and compresses multiples, thereby narrowing the economic room to pay a control premium. The second is bankability: higher benchmarks and wider spreads raise coupons and interest expense, reduce sustainable leverage, and shrink the set of financeable deals—most visibly for sponsors whose equity returns depend on the spread between debt cost and EBITDA growth. The third is market access: heightened rate volatility and tighter liquidity reduce underwriting depth and risk appetite in loans and bonds, delaying signings or closings; the mirror image under easing—lower rates, stable curves, and tighter spreads—reopens windows, enabling new-money term funding and refinancing of maturities. The net effect is a function of level, slope, and volatility of the curve: lower and calmer curves with steady spreads tend to support volumes; high or unstable curves, even with unchanged spreads, enforce selectivity.

Evidence from 2021–2024 and what the chart shows

M&A deals and interest rates (2021-2024).
M&A deals and interest rates (2021-2024)
Source: Fed.

The global pattern over 2021–2024 is consistent with this mechanism. In 2021, deal counts reached a cyclical peak in an environment of near-zero short-term rates, abundant liquidity, and elevated equity valuations; frictions on the cost of capital were minimal and access to debt markets was easy, so the economic threshold for completing transactions was lower. Between 2022 and 2024, monetary tightening lifted short-term benchmarks rapidly while spreads and uncertainty rose; global deal counts fell materially and the market became more selective, favoring higher-quality assets, resilient sectors, and transactions with stronger industrial logic. Over this period, global deal counts were 58,308 in 2021, 50,763 in 2022, 39,603 in 2023, and 36,067 in 2024, while U.S. short-term rates moved from roughly 0.14% to above 5%; the chart shows an inverse co-movement between the cost of money and activity. Correlation is not causation—antitrust enforcement, energy shocks, equity multiple swings, and the rise of private credit also mattered—but the macro signal aligns with monetary transmission.

What does academic research say

Academic research broadly confirms the mechanism sketched above: when policy rates rise and financing conditions tighten, both the volume and composition of M&A activity change. Using U.S. data, Adra, Barbopoulos, and Saunders (2020) show that increases in the federal funds rate raise expected financing costs, are followed by more negative acquirer announcement returns, and significantly increase the probability that deals are withdrawn, especially when monetary policy uncertainty is high. Fischer and Horn (2023) and Horn (2021) exploit high-frequency monetary-policy shocks and find that a contractionary shock leads to a persistent fall in aggregate deal numbers and values—on the order of 20–30%—with the effect concentrated among financially constrained bidders; at the same time, the average quality of completed deals improves because weaker acquirers are screened out. Work on leveraged buyouts links this to credit conditions: Axelson et al. (2013) document that cheap and abundant credit is associated with higher leverage and higher buyout prices relative to comparable public firms, while theoretical models such as Nicodano (2023) show how optimal LBO leverage and default risk respond systematically to the level of risk-free rates and credit spreads.

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   ▶ Bijal GANDHI Interest Rates

   ▶ Nithisha CHALLA Relation between gold price and interest rate

   ▶ Roberto RESTELLI My internship at Valori Asset Management

Useful resources

Academic articles

Adra, S., Barbopoulos, L., & Saunders, A. (2020). The impact of monetary policy on M&A outcomes. Journal of Corporate Finance, 62, 1-61.

Fischer, J. and Horn, C.-W. (2023), Monetary Policy and Mergers and Acquisitions, Working paper Available at SSRN

Horn, C.-W. (2021) Does Monetary Policy Affect Mergers and Acquisitions? Working paper.

Axelson, U., Jenkinson, T., Strömberg, P., & Weisbach, M. S. (2013) Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts, The Journal of Finance, 68(6), 2223-2267.

Financial data

Federal Reserve Bank of New York Effective Federal Funds Rate (EFFR): methodology and data

Federal Reserve Bank of St. Louis Effective Federal Funds Rate (FEDFUNDS)

OECD Data Long-term interest rates

About the author

The article was written in November 2025 by Emanuele BAROLI (ESSEC Business School, Master in Finance (MiF), 2025–2027).

   ▶ Read all articles by Emanuele BAROLI.

Drafting an Effective Sell-Side Information Memorandum: Insights from a Sell-Side Investment Banking Experience

by
Emanuele BAROLI

In this article, Emanuele BAROLI (ESSEC Business School, Master in Finance (MiF), 2025–2027) explains how to draft an M&A Information Memorandum, translating sell-side investment-banking practice into a clear, evidence-based guide that buyers can use to progress from interest to a defensible bid.

What is an Info Memo

An information memorandum is a confidential, evidence-based sales document used in M&A processes to enable credible offers while safeguarding the sell-side process. It sets out what is being sold, why it is attractive, and how the deal is framed, and it is structured—consistently and without redundancy—around the following chapters: Executive Summary, Key Investment Highlights, Market Overview, Business Overview, Historical Financial Performance and Current-Year Budget, Business Plan, and Appendix. Each section builds on the previous one so that every claim in the narrative is traceable to data, definitions, and documents referenced in the appendix and the data room.

Executive summary

The executive summary is the gateway to the memorandum and must allow a prospective acquirer to grasp, within a few pages, what is being sold, why the asset is attractive, and how the transaction is framed. It should state the perimeter of the deal, the nature of the stake or assets included, and the essence of the equity story in language that is direct, verifiable, and consistent with the evidence presented later. The narrative should situate the company in its market, outline the recent trajectory of scale, profitability, and cash generation, and articulate—in plain terms—the reasons an informed buyer might assign strategic or financial value. Nothing here should rely on empty superlatives; every claim in the summary must be traceable to supporting material in subsequent sections and to documents made available in the data room. Clarity and internal consistency matter more than flourish: the reader should finish this section knowing what the asset is, why it matters, and what next steps the process anticipates.

Key investment highlights

This section filters the equity story into a small number of decisive arguments, each of which combines a clear assertion, hard evidence, and an explicit investor implication. The prose should explain, not advertise sustainable growth drivers, defensible competitive positioning, quality and predictability of revenue, conversion of earnings into cash, discipline in capital allocation, credible management execution, and identifiable avenues for organic expansion or bolt-on M&A. Each highlight should read as a self-contained reasoning chain—statement, proof, consequence—so that a buyer can connect operational facts to valuation logic.

Market overview

The market overview demonstrates that the asset operates within an addressable space that is sizeable, healthy, and legible. Begin by defining the market perimeter with precision so that later revenue segmentations align with it. Describe the current size and structure of demand, the expected growth over a three-to-five-year horizon, and the drivers that sustain or threaten that growth—technological shifts, regulatory trends, customer procurement cycles, and macro sensitivities. Map the competitive landscape in terms of concentration, barriers to entry, switching costs, and price dynamics across channels. Distinguish between the immediate market in which the company competes and the broader industry environment at national or international level, explaining how each influences pricing power, customer acquisition, and margin stability. All figures and characterizations should be sourced to independent references, allowing the reader to verify both methodology and magnitude.

Business overview

The business overview explains plainly how the company creates value. It should describe what is sold, to whom, and through which operating model, covering products and services, relevant intellectual property or certifications, customer segments and geographies served, and the logic of revenue generation and pricing. The text should make the differentiation intelligible—quality, reliability, speed, functionality, service levels, or total cost of ownership—and then connect that differentiation to commercial traction. Operations deserve a concise, concrete treatment: footprint, capacity and utilization, supply-chain architecture, service levels, and, where material, the technology stack and data security posture. The section should close with the people who actually run the company and are expected to remain post-closing, outlining roles, governance, and incentive alignment. The aim is not to impress with jargon but to let an investor see a coherent engine that turns inputs into outcomes.

Historical financial performance and budget

This chapter turns performance into an intelligible narrative. Present the historical income statement, balance sheet, and cash flow over a three-to-five-year window—preferably audited—and reconcile management accounts with statutory figures so that definitions, policies, and adjustments are transparent. Replace tables-for-tables’ sake with analysis: show where growth and margins come from by decomposing revenue into volume, price, and mix; explain EBITDA dynamics through efficiency, pricing, and non-recurring items; separate maintenance from growth capex; and trace how earnings convert into cash by discussing working-capital movements and seasonality. In a live process, the current-year budget should set out the explicit operating assumptions behind it, the key milestones and risks, and a brief intra-year read so a buyer can compare budget to year-to-date performance. If carve-outs, acquisitions, or other discontinuities exist, present clean pro forma views so the time series remains comparable.

Business plan

The business plan translates the equity story into forward-looking numbers and commitments that can withstand diligence. Build the plan from drivers rather than percentages: revenue as a function of volumes, pricing, mix, and retention; costs split between fixed and variable components with operational leverage and efficiency initiatives laid out; capital needs expressed through capex, working-capital discipline, and any anticipated financing structure. Provide a three-to-five-year view of P&L, cash flow, and balance-sheet implications, making explicit the capacity constraints, hiring requirements, and lead times that link initiatives to outcomes. A sound plan includes a base case and either sensitivities or alternative scenarios, together with risk mitigations that are actually within management control. If bolt-on M&A features in the strategy, describe the screening criteria, integration capability, and the nature of the synergies in a way that distinguishes aspiration from execution.

Appendix

The appendix holds detail without overloading the core narrative and preserves auditability. It should contain the full legal disclaimer and confidentiality terms, a glossary of definitions and KPIs to eliminate ambiguity, detailed financial schedules and reconciliation notes, methodological summaries and citations for market data, concise contractual information for key customers and suppliers where material, operational and ESG indicators that genuinely affect value, and a process note with timeline, bid instructions, Q&A protocols, and site-visit guidance. The organizing principle is traceability: any figure or claim in the memorandum should be traceable to a line item or document referenced here and made available in the data room.

Why should you be interested in this post?

For students interested in corporate finance and M&A, this post shows how to translate sell-side practice into a rigorous structure that investors can actually diligence—an essential skill for internships and analyst roles.

Related posts on the SimTrade blog

   ▶ Roberto RESTELLI BCapital Fund at Bocconi: building a student-run investment fund

   ▶ Louis DETALLE A quick presentation of the M&A field…

   ▶ Ian DI MUZIO My Internship Experience at ISTA Italia as an In-House M&A Intern

Useful resources

Corporate Finance Institute – (CFI) Confidential Information Memorandum (CIM)

DealRoom How to Write an M&A Information Memorandum

About the author

The article was written in December 2025 by Emanuele BAROLI (ESSEC Business School, Master in Finance (MiF), 2025–2027).

   ▶ Read all articles by Emanuele BAROLI.

My Internship Experience at ISTA Italia as an In-House M&A Intern

by
Ian DI MUZIO

In this article, Ian DI MUZIO (ESSEC Business School, Master in Finance (MiF), 2025–2027) shares his professional experience as an In-House M&A Intern within the Corporate Development team at ISTA Italia in Milan (May–July 2025).

Introduction

Joining ISTA Italia placed me at the intersection of energy efficiency, smart metering, and consolidation strategy in a sector undergoing deep regulatory and technological transformation. Over twelve demanding weeks, I supported live buy-and-build workstreams — screening targets, reconstructing trial balances, reclassifying financials, building valuation files, and drafting investment notes for the CEO and Board. The mandate was clear yet challenging: sharpen our thesis on distributed energy services and translate market complexity into clear, numbers-backed recommendations. This post recaps the journey — how we framed the Italian energy-efficiency landscape, which analytical approaches proved most useful, what I built and learned, and why in-house M&A provides a uniquely entrepreneurial vantage point within an operating company.

About ISTA

ISTA is a leading provider of sub-metering, heat cost allocation, and building-level energy services. The company equips multi-apartment and commercial buildings with systems and data platforms that measure and manage consumption of heat, water, and electricity, enabling fair billing, reduced waste, and compliance with European directives. In Italy, ISTA collaborates with condominium administrators, facility managers, and energy service companies (ESCOs) to modernize metering infrastructure and digitalize building operations.

Logo of ISTA Italia.
Logo of ISTA Italia
Source: the company.

Industry Context: Energy Efficiency, Data, and Regulation in Italy

Italy’s building stock is among the oldest in Europe, making energy efficiency a national priority. European initiatives such as the “Fit for 55” package and the recast of the Energy Performance of Buildings Directive drive the transition toward sub-metering, remote reading, and transparent billing. At the same time, municipalities are deploying smart-city technologies using NB-IoT and LoRaWAN networks to collect real-time data. To analyze this complex environment, I applied a PESTEL framework — mapping Political, Economic, Social, Technological, Environmental, and Legal forces. Success in this market depends on combining reliable hardware, user-friendly software, and strong financial discipline — integrating technology with capital efficiency.

From Thesis to Pipeline: Market Research and Strategic Filters

Within this context, I helped refresh ISTA’s acquisition thesis around smart metering and energy analytics. Together with a senior manager, I developed a structured screening funnel to evaluate nearly 180 potential acquisition targets across Italy. We then shortlisted 24 firms based on governance, service mix, and integration potential. Each company profile became a strategic decision tool, anticipating negotiation levers such as margin structure, contractual terms, and capital requirements. This process taught me how strategy, finance, and market intelligence converge during the earliest stages of M&A execution.

Hands-On Experience

My tasks were diverse and highly practical. I reclassified over one hundred sets of financial statements into a standardized format to achieve comparability across targets. I reconstructed several trial balances from incomplete ledgers, validated earnings adjustments, and built valuation models including discounted cash flow (DCF) analyses, trading and transaction multiples, and scenario testing. I also produced concise investment notes for management, synthesizing quantitative findings into strategic insights — identifying the drivers of return, integration pain points, and KPIs for potential earn-out mechanisms. This hands-on exposure to data reconstruction and financial storytelling strengthened my ability to produce decision-grade analysis under time constraints.

Analytical Tools and Live Workstreams

During my internship, I developed several analytical frameworks that improved the rigor of our evaluations. A churn-adjusted DCF captured contract decay and renewal patterns, while a working-capital flywheel model clarified how billing and collection cycles affected liquidity. I designed route density metrics to measure field efficiency, translating operational realities into quantitative signals of profitability. Finally, risk normalization models allowed us to calibrate warranty provisions in small-sample contexts. These frameworks converged in a live acquisition project — internally called “Project Hydra” — which involved a Northern Italian operator with 120,000 meters and a strong service base. I built revenue bridges, synergy trees, and preliminary integration plans, directly contributing to the non-binding offer and subsequent strategic blueprint.

Competitive Landscape

The competitive landscape combined OEM-affiliated service providers, ESCOs and facility managers, and regional “hidden champions”. Our benchmarking highlighted that long-term advantage stems less from product design than from operational density, data integration, and disciplined capital allocation. ISTA’s hybrid model — combining hardware-agnostic technology with robust field operations — positions it strongly within a fragmented yet consolidating market.

Beyond the Model: Stakeholders and Storytelling

In-house M&A is not a spectator role but an immersive process in which numbers must meet narratives. I joined vendor calls, prepared Q&A scripts, and defended assumptions before operational leaders. Two insights stood out. First, translating finance into field terms matters: a two-point margin improvement only gains meaning when expressed as time saved or service calls avoided. Second, stakeholder empathy is critical: condominium administrators prioritize reliability and transparency as much as pricing. Learning to align financial rationale with human incentives was among the most valuable aspects of the experience.

What I Learned

The internship taught me to build financial models that withstand operational scrutiny and to integrate compliance, interoperability, and human factors into acquisition planning. I learned that synergies materialize not in spreadsheets but in coordinated execution and communication. Ultimately, working within an operating company reshaped my understanding of M&A: the challenge is not merely valuing an asset but ensuring it thrives after acquisition.

Conclusion

My time at ISTA Italia deepened my appreciation for how valuation, strategy, and integration interlock in practice. I left with a sharper eye for recurring-revenue quality, a stronger grasp of energy-efficiency economics, and a greater respect for the intersection between regulation, technology, and field execution. Above all, I learned how to transform complex, fragmented data into clear, actionable insights that drive real-world decisions.

Why should I be interested in this post?

This post offers business students a concrete view of how corporate development operates within a dynamic, regulated industry. It demonstrates how in-house M&A blends strategy, operations, and finance, and how analytical precision translates into strategic advantage. For students interested in corporate finance, private equity, or industrial strategy, it illustrates the value of bridging numbers with narrative, and modeling with execution.

Related posts on the SimTrade blog

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Useful resources

ISTA Official Website

European Commission Fit for 55 Package

ARERA – Italian Regulatory Authority for Energy

Initial Learn With Me (2024) Understanding Advanced Metering Infrastructure (AMI) in Smart Grid System

About the author

The article was written in November 2025 by Ian DI MUZIO (ESSEC Business School, Master in Finance (MiF), 2025–2027).

FMCG Sector: M&A Trends And Its Implications

by

Anant Jain

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about the M&A trends in the FMCG sector.

Introduction

The Fast-Moving Consumer Goods (FMCG) sector plays an essential part in the global economy due to its high volume of goods and consistent consumer demand. It includes goods from everyday essentials such as food and beverages to personal care products, and this sector thrives on efficiency, scale, and market penetration. In recent years, this sector recorded a spike in mergers and acquisitions (M&A) activities to help companies in the process to be come more globalized companies, increase market penetration, expanding the portfolio of the companies and help becoming more digitalized. This article studies the trends, tactics and effects of M&A in the FMCG sector and supported by data and case studies where applicable.

Figure 1. M&A Transactions & Value Worldwide Across All Sectors.
Title
Source: IMAA

Key Drivers Of M&A In The FMCG Sector

Globalization And Market Expansion

Of the many reasons that drive M&A activity in the FMCG industry, globalization is the most important one. Firms in this industry have ambitions – they want to widen their geographical reach, access new markets and customers, and capitalize on the growth of these establishments in the emerging markets. With the saturation of mature markets such as North America and Western Europe, FMCG companies have been targeting new and emerging economies regions such as Asia, Africa and Latin America where the growth rates are relatively higher.

Global FMCG M&A Activity: According to PwC 2022 reports, the total value of M&A transactions in the consumer goods industry, including FMCG mergers, stood at about $300 billion in the year 2022. Emerging markets accounted for about 25% of this figure, shedding light on the focus of global FMCG strategies.

Case Study – Unilever’s Acquisition of Carver Korea: Unilever acquired Carver Korea for $2.7 billion in 2017. Carver Korea is focused on skincare, a market especially in South Korea that was estimated to grow at a CAGR of 9.2% between 2017 and 2025. Through this acquisition, Unilever enhanced its foothold in the Asian beauty market, where millennial consumers are becoming the target demographic for a leading beauty economy.

Portfolio Diversification

Diversification is a major driver for FMCG companies pursuing M&A. As consumer preferences shift and emerging trends, such as the big trend of health and wellness, companies are extending their products to cater to the changing dynamics. This trend combined has become crucial as FMCG giants are increasing their expansion efforts towards less mature categories, shifting from traditional product categories with slower growth prospects.

Nestlé’s Health and Wellness Strategy: Nestlé has recently been acquiring numerous companies operating within the health and wellness industry. The acquisition of Atrium Innovations for $2.3 billion in 2017 underscored their resolve to broaden their nutritional health services. Specializing in vitamins, minerals, and supplements, Atrium Innovations is positioned in a market projected to reach $349.4 billion dollars in 2026. Nestlé’s diversified strategy fits the emerging trend where consumers are in the market for products which guarantee health, wellness and elongation of lifespan.

Coca-Cola and Costa Coffee: Coca Cola purchased Costa Coffee for $5.1 billion in 2018 as a part of their strategy to enhance diversification by moving beyond non-alcoholic beverages. Investment in Costa Coffee also reflected Coca-Cola’s recognition that coffee is incrementally becoming a category with strong revenue potential especially with the CAGR of 4.3% projected for the coffee market globally.

Innovation And Product Development

Acquisition of small companies that are agile and quick in product development has been the focus of growth for many FMCG companies. As consumers become more selective of what they eat and drink, there is a shift in strategy for many companies that are looking to expand their portfolio through acquisition, targeting high growth areas such as plant-based foods, functional drinks and natural cosmetics.

PepsiCo’s Acquisition of KeVita: PepsiCo’s purchase of the US based company keVita, leading manufacturer of probiotics beverages, for $200 million as a part of the strategy of expanding and capturing a greater share in the functional beverage market. The market worldwide for probiotics is estimated to grow at a compound annual growth rate of 7.2% for the period of 2021 up to 2026. This acquisition reflects the broader trend of FMCG companies acquiring brands in high-growth, health-focused categories.

Sustainability And ESG Pressures

To consumers and businesses alike, sustainability has become a cause that is key to them, and in effect has led to a shift in the landscape of FMCGs. There are high levels of demand and need for sustainable business models among companies that have made M&As focused on acquiring brands that are environmentally friendly.

Unilever and Seventh Generation: Unilever’s acquisition of Seventh Generation, a US based company selling environmentally friendly cleaning products is a response to the change in consumer preferences in regard to their buying behavior. From 2021 to 2028, the market for eco-friendly household items is anticipated to grow at a CAGR of 6.5%. This acquisition made it possible for Unilever to pivot its portfolio to sustainable eco-friendly options which was in line with Unilever’s wider environmental, social and governance strategies goals.

M&A Trends In The FMCG Sector

Rise Of The Health And Wellness Segment

In the FMCG industry, it is relevant to talk about companies’ acquisitions in the health and wellness category as this sector has witnessed one of the fastest growth rates within the FMCG market. As per the market trends, consumers are now more oriented and prone towards healthy lifestyle products, hence the rise in acquisition in this space. According to recent developments, the majority of the FMCG companies are effectively acquiring minor brands from places that specialize in selling plant-based food, vitamins, dietary supplements, and functional beverages.

Global Health and Wellness Industry: As per the Global Wellness Institute, the estimated value of the global health and wellness market is expected to cross $6.9 Trillion by 2025. PepsiCo’s acquisition of KeVita illustrates how FMCGs are buying into companies with health benefits, as KeVita is an innovator in the probiotics market. The move is consistent with PepsiCo’s goal of expanding beyond sodas into healthier options.

Digital And E-Commerce Capabilities

The expansion of e-commerce which has been further fueled by the COVID-19 pandemic, has revolutionized the strategies of FMCG marketing. The recent mergers and acquisitions have gravitated towards the acquisition of companies with ability to perform and distribute goods directly to customers (DTC). Such trends are likely to prevail with e-commerce becoming a very important target to the selling of FMCG products.

Growth of FMCG E-Commerce: According to Kantar, in 2022, the e-commerce market of the Fast Moving Consumer Goods globally increased by 16%. To participate in this growth, FMCG players are expanding through mergers and acquisitions. Unilever’s acquisition of Onnit, a predominantly e-commerce wellness company, is an example of this transition.

Private Label Consolidation

The rise of private label brands has been evident given the demand from customers for quality products but at cheaper prices. This has in turn created a scenario where large FMCG companies have moved to buy private label manufacturing companies.

Private Label Market Share: As per NielsenIQ, private labels in Europe represent about 40% of the market. This trend spurred extensive consolidation in the industry as traditional FMCGs tried to protect market share by expanding their private label businesses against retailers’ brands.

Focus On Regional Players

Acquisition of regional players remains a popular corporate strategy for global multinationals in the FMCG industry. These acquisitions enable the companies to tap into local knowledge, existing distribution channels and local consumer tastes and preferences.

Regional FMCG M&A: Approximately 35% of the FMCG acquisition deals arranged in 2022 were targeted at acquiring regional players. This indicates the shift towards localized customizing of goods and services, especially in developing countries which tend to be very different in terms of their consumer base from western markets.

Implications Of M&A In The FMCG Sector

Increased Competition

The consolidation of FMCG companies through M&A has led to increased competition in the marketplace. This is because larger and more established players are able to leverage economies of scale, enhance their marketing capabilities, and invest in new product development, putting significant pressure on smaller players.

Global FMCG Market Size: According to Allied Market Research, the global FMCG market is on track to reach $15.4 trillion by the year 2025 and is expected to grow at a 4.9% CAGR. It is anticipated that this growth will be led by larger FGMC players hence leaving little room for smaller independent firms unless they figure out a way to innovate or are bought off.

Consumer Choice And Innovation

While M&A can lead to greater innovation as companies acquire new capabilities, it can also result in fewer choices for consumers if large companies consolidate and dominate key segments. Balancing innovation with consumer choice remains a challenge for FMCG giants.

Innovation through Acquisition: The research conducted by Deloitte’s M&A has shown that 75% of FMCG’s CEOs, view merger and acquisitions of smaller agile companies as rational and a desirable form of development. It is important to emphasize the position of M&A in the FMCG sector as a facilitator of innovation but as a means of ensuring diversity in the market.

Supply Chain Efficiencies

One of the main financial benefits of M&A is the realization of supply chain efficiencies. By consolidating supply chains and leveraging economies of scale, companies can reduce costs and improve profitability. However, this often involves the closure of redundant facilities and potential job losses.

Cost Synergies in FMCG M&A: Bain & Company estimates that FMCG companies typically achieve cost synergies of 5-10% following acquisitions, primarily through supply chain optimization and the elimination of overlapping processes. While these efficiencies benefit shareholders, they can also lead to short-term disruptions in the workforce.

Regulatory And Antitrust Scrutiny

As M&A activity in the FMCG sector increases, companies must also contend with regulatory scrutiny. Antitrust regulators, particularly in the U.S. and Europe, have become increasingly concerned with the impact of consolidation on competition.

Regulatory Actions: The takeover of Pioneer Foods by PepsiCo was ineffective in 2018 because the European Commission disallowed the merger on account of what it perceived as reduced competition in the food and drink market. More regulatory evaluation can be expected especially in situation where big FMCG companies want to acquire key competitors in the industry.

Conclusion

Rapid changes continue to occur in the FMCG industry and these changes are being driven by M&As. Through these strategic alliances, companies optimize growth in new markets, grow their business through other more versatile brands, or target expansion/diversification. However, as the sector consolidates, companies must carefully navigate regulatory challenges, maintain consumer choice, and balance innovation with market competition. The next decade is likely to see continued M&A activity as FMCG companies respond to evolving consumer preferences, digital disruptions, and sustainability pressures.

Related Posts On The SimTrade Blog

▶ Anant JAIN Top 12 FMCG Companies Worldwide

▶ Lilian BALLOIS M&A Strategies: Benefits and Challenges

▶ Suyue MA Analysis of synergy-based theories for M&A

▶ Basma ISSADIK My experience as an M&A Analyst Intern at Oaklins Atlas Capital

Useful Resources

PwC Consumer Markets Insights 2022

Statista FMCG Market Data

Grand View Research FMCG and Health & Wellness Market Reports

Deloitte Consumer Products M&A Outlook

Global Wellness Institute Global Wellness Economy Report

Kantar FMCG E-Commerce Growth Report

Bain & Company Synergies in M&A

European Commission Merger Control Decisions

About The Author

The article was written in February 2025 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

   ▶ Read all articles by Anant JAIN.

Special Acquisition Purpose Companies (SPAC)

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Special Acquisition Purpose Companies (SPAC)

Martin VAN DER BORGHT

In this article, Martin VAN DER BORGHT (ESSEC Business School, Master in Finance, 2022-2024) develops on the SPACs.

What are SPACs

Special purpose acquisition companies (SPACs) are an increasingly popular form of corporate finance for businesses seeking to go public. SPACs are publicly listed entities created with the objective of raising capital through their initial public offering (IPO) and then using that capital to acquire a private operating business. As the popularity of this financing method has grown, so have questions about how SPACs work, their potential risks and rewards, and their implications for investors. This essay will provide an overview of SPAC structures and describe key considerations for investors in evaluating these vehicles.

How are SPACs created

A special purpose acquisition company (SPAC) is created by sponsors who typically have a specific sector or industry focus; they use proceeds from their IPO to acquire target companies within that focus area without conducting the usual due diligence associated with traditional IPOs. The target company is usually identified prior to the IPO taking place; after it does take place, shareholders vote on whether or not they would like to invest in the acquisition target’s stock along with other aspects such as management compensation packages.

The SPAC process

The process begins when sponsors form a shell corporation that issues share via investment banks’ underwriting services; these shares are then offered in an IPO which typically raises between $250 million-$500 million dollars depending on market conditions at time of launch. Sponsors can also raise additional funds through private placements before going public if needed and may even receive additional cash from selling existing assets owned by company founders prior to launching its IPO. This allows them more flexibility in terms of what targets they choose during search process as well as ability transfer ownership over acquired business faster than traditional M&A processes since no need wait secure regulatory approval beforehand. Once enough capital has been raised through IPO/private placement offerings, sponsor team begins searching for suitable candidate(s) purchase using criteria determined ahead time based off desired sector/industry focus outlined earlier mentioned: things like size revenue generated per quarter/yearly periods competitive edge offered current products compared competitors etcetera all come play here when narrowing down list candidates whose acquisitions could potentially help increase value long-term investments made original shareholders..

Advantages of SPACs

Unlike traditional IPOs where companies must fully disclose financial information related past performance future prospects order comply regulations set forth Securities & Exchange Commission (SEC), there far less regulation involved investing SPACs because purchase decisions already being made prior going public stage: meaning only disclose details about target once agreement reached between both parties – though some do provide general information during pre-IPO phase give prospective buyers better idea what expect once deal goes through.. This type of structure helps lower cost associated taking business public since much due diligence already done before opening up share offer investors thus allowing them access higher quality opportunities at fraction price versus those available traditional stock exchange markets. Additionally, because shareholder votes taken into consideration each step way, risk potential fraud reduced since any major irregularities discovered regarding selected targets become transparent common knowledge everyone voting upon proposed change (i.e., keeping board members accountable).

Disadvantages of SPACs

As attractive option investing might seem, there are still certain drawbacks that we should be aware such the high cost involved structuring and launching successful campaigns and the fact that most liquidation events occur within two years after listing date – meaning there is a lot of money spent upfront without guarantee returns back end. Another concern regards transparency: while disclosure requirements are much stricter than those found regular stocks, there is still lack of full disclosure regarding the proposed acquisitions until the deal is finalized making difficult to determine whether a particular venture is worth the risk taken on behalf investor. Lastly, many believe merging different types of businesses together could lead to the disruption of existing industries instead just creating new ones – something worth considering if investing large sums money into particular enterprise.

Examples of SPACs

VPC Impact Acquisition (VPC)

This SPAC was formed in 2020 and is backed by Pershing Square Capital Management, a leading hedge fund. It had an initial funding of $250 million and made three acquisitions. The first acquisition was a majority stake in the outdoor apparel company, Moosejaw, for $280 million. This acquisition was considered a success as Moosejaw saw significant growth in its business after the acquisition, with its e-commerce sales growing over 50% year-over-year (Source: Business Insider). The second acquisition was a majority stake in the lifestyle brand, Hill City, for $170 million, which has also been successful as it has grown its e-commerce and omnichannel businesses (Source: Retail Dive). The third acquisition was a minority stake in Brandless, an e-commerce marketplace for everyday essentials, for $25 million, which was not successful and eventually shut down in 2020 after failing to gain traction in the market (Source: TechCrunch). In conclusion, VPC Impact Acquisition has been successful in two out of three of its acquisitions so far, demonstrating its ability to identify successful investments in the consumer and retail sector.

Social Capital Hedosophia Holdings Corp (IPOE)

This SPAC was formed in 2019 and is backed by Social Capital Hedosophia, a venture capital firm co-founded by famed investor Chamath Palihapitiya. It had an initial funding of $600 million and has made two acquisitions so far. The first acquisition was a majority stake in Virgin Galactic Holdings, Inc. for $800 million, which has been extremely successful as it has become a publicly traded space tourism company and continues to make progress towards its mission of accessible space travel (Source: Virgin Galactic). The second acquisition was a majority stake in Opendoor Technologies, Inc., an online real estate marketplace, for $4.8 billion, which has been successful as the company has seen strong growth in its business since the acquisition (Source: Bloomberg). In conclusion, Social Capital Hedosophia Holdings Corp has been incredibly successful in both of its acquisitions so far, demonstrating its ability to identify promising investments in the technology sector.

Landcadia Holdings II (LCA)

This SPAC was formed in 2020 and is backed by Landcadia Holdings II Inc., a blank check company formed by Jeffery Hildebrand and Tilman Fertitta. It had an initial funding of $300 million and made one acquisition, a majority stake in Waitr Holdings Inc., for $308 million. Unfortunately, this acquisition was not successful and it filed for bankruptcy in 2020 due to overleveraged balance sheet and lack of operational improvements (Source: Reuters). Waitr had previously been a thriving food delivery company but failed to keep up with the rapid growth of competitors such as GrubHub and DoorDash (Source: CNBC). In conclusion, Landcadia Holdings II’s attempt at acquiring Waitr Holdings Inc. was unsuccessful due to market conditions outside of its control, demonstrating that even when a SPAC is backed by experienced investors and has adequate funding, there are still no guarantees of success.

Conclusion

Despite all these drawbacks, Special Purpose Acquisition Companies remain a viable option for entrepreneurs seeking to take advantage of the rising trend toward the digitalization of global markets who otherwise wouldn’t have access to the resources necessary to fund projects themselves. By providing unique opportunity to access higher caliber opportunities, this type of vehicle serves fill gap left behind many start-up ventures unable to compete against larger organizations given the limited financial capacity to operate self-sufficiently. For reasons stated above, it is clear why SPACs continue to gain traction both among investors entrepreneurs alike looking to capitalize quickly on changing economic environment we live today…

Related posts on the SimTrade blog

   ▶ Daksh GARG Rise of SPAC investments as a medium of raising capital

Useful resources

U.S. Securities and Exchange Commission (SEC) Special Purpose Acquisition Companies

U.S. Securities and Exchange Commission (SEC) What are the differences in an IPO, a SPAC, and a direct listing?

U.S. Securities and Exchange Commission (SEC) What You Need to Know About SPACs – Updated Investor Bulletin

PwC Special purpose acquisition companies (SPACs)

Harvard Business Review SPACs: What You Need to Know

Harvard Business Review SPACs: What You Need to Know

Bloomberg

Reuters

About the author

The article was written in January 2023 by Martin VAN DER BORGHT (ESSEC Business School, Master in Finance, 2022-2024).

The abandonment of the TF1-M6 merger: what happened?

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The abandonment of the TF1-M6 merger: what happened?

Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains how the fusion of the 2 biggest French TV companies has failed…

What was planned & why?

It was in May 2021 that the project to bring together the two French television channels was announced. On the one hand, TF1, whose 2020 turnover exceeds 2 billion euros; on the other hand, M6 with a turnover of 1.2 billion euros.

In the context of the loss of speed of French television channels in the face of fierce competition from the multiplying streaming platforms such as Netflix, Disney+ and Prime Video, the two television groups had deemed it strategic to come together in a giant merger.

Indeed, if we look at TF1’s revenues in 2020, they may reach more than €2 billion, but this means a notable drop of €256 million compared to 2020, i.e., a drop of 11% in its turnover.

It is therefore in a context of loss of market share that the two French television giants announced their desire to merge. A merger would have enabled these two players to combine a total of 40% of the television audience and 70% of the television advertising market.

This risk of an ultra-dominant position in France was also the source of complications for the two groups, which estimated that they could achieve economies of scale of nearly €300 million.

What happened after the announcement?

Well, after the announcement, the French Competition Authority (l’Autorité de la concurrence in French) announced that it had started a report on the consequences of a potential merger between the two groups.

The result of this report was made known on July 27, 2022: the TV channel groups were asked to divest themselves of some of their larger channels to satisfy the market monopoly issues.

According to this report, it was suggested that the M6 group should, for example, have divested itself of the M6 channel as well as TFX, 6Ter and Paris Première, which was not possible. The Directorate-General for Competition, Consumer Affairs and Fraud Control suggested to the competition authority that the new entity should sell W9 or TMC.

Why haven’t M6 & TF1 accepted to sell some TV channels?

First of all, at the beginning of the announcement of the merger project, the management of the two groups argued that their so-called hegemony on the television advertising market was non-existent.

One of their strong arguments was to point out that the market to be considered was not only that of television advertising, but rather the market for advertising on broadcasting platforms. This market would then effectively include television but also advertising on streaming sites or on-demand content platforms.

This argument was rejected by the competition authority, which considered that the market to be considered remained that of French television advertising and that an entity with 75% of the market share was therefore unthinkable, which is why TV channels had to be sold.

Useful resources

Autorité de la concurrence

Group M6’s website

Group TF1’s website

Related posts on the SimTrade blog

   ▶ Louis DETALLE A quick presentation of the M&A job…

   ▶ Suyue MA Analysis of synergy-based theories for M&A

   ▶ Basma ISSADIK My experience as an M&A Analyst Intern at Oaklins Atlas Capital

   ▶ Raphaël ROERO DE CORTANZE In the shoes of a Corporate M&A Analyst

About the author

The article was written in October 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

My experience as an M&A Analyst Intern at Oaklins Atlas Capital

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My experience as an M&A Analyst Intern at Oaklins Atlas Capital

Basma ISSADIK

In this article, Basma ISSADIK (ESSEC Business School, Global Bachelor of Business Administration, 2019-2023) shares her experience as an M&A Analyst intern at Oaklins Atlas Capital.

In May-June 2021, I was able to intern at Oaklins Atlas Capital, which is the Moroccan branch of Oaklins, a leader of M&A advising in mid-market operations. Oaklins group has advisory teams in 45 countries around the world. The Oaklins team provides mergers and acquisitions, growth equity and equity capital markets, debt advisory and corporate finance advisory services.

Oaklins Atlas Capital

Founded in 1999, Atlas Capital is an independent investment bank in Morocco covering all businesses: investment banking, asset management, stock market intermediation and private management. Offering a range of financial services with high added value, it targets a diversified clientele, whether companies and public offices, financial institutions, private companies or individual investors. It then was included in the Oaklins group and network which has presence across the globe through its 45 teams from Stockholm to Shanghai, from New York to São Paulo. The bank benefits from cross-border collaboration which helps the teams find the best suitable deals for its clients with a track record of more than 1900 deals being closed in the past five years.

Logo Oaklins Atlas Capital
Oaklins Atlas Capital
Source: Oaklins Atlas Capital.

My internship at Oaklins Atlas Capital

During May-June 2021, I worked as an M&A Analyst intern at Oaklins Atlas Capital. During my time at the bank, my main responsibilities were writing fact sheets about new clients (through communication with the Oaklins Network) and target companies / projects in Morocco. I was also responsible for drafting presentations (teaser, pitch, kick off meetings), for valuations (DCF, transactions) of the target companies once our clients confirmed their interest with it, and for assisting senior management in day-to-day tasks in relation to the transactions.

This experience was my very first in investment banking and it helped me understand the M&A process and how important negotiation and customer relationships were to this field. This internship introduced me to the very basics of Mergers and Acquisitions through a high-level of personal attention and monitoring as I was in a team of five in total including two partners and three interns. I had the opportunity to learn directly from professionals who have been in the field for 20+ years. Moreover, through this internship, I have been exposed to many industries: textile, technology, agriculture, food processing industry, electrical equipment, infrastructure, renewable energy and to clients from all over the world.

Skills needed

  • Strong interpersonal skills
  • Financial analysis skills
  • Customer service (if you are to interact with clients)
  • To be familiar with finance and be able to analysis financial data
  • To be familiar with digital tools such as pptx and excel

What I have learnt from the internship

This internship has helped me learn so much about cross-border operations and how to approach potential acquirers with target companies and discuss the acquisition with them. It has also enabled me to have a solid understanding of many industries as I was in charge of sectoral research.

Key concepts related to my work

Mergers and acquisitions

Why do companies merge with and acquire other companies? Mergers and acquisitions are the act of consolidating companies or assets with an eye toward stimulating growth (it can expand a company’s market shares without it having to do significant heavy lifting), gaining competitive advantages (maybe eliminating competition and gaining market share), increasing market share, or influencing supply chains (eliminating a tier of costs).

A merger describes two companies uniting into a single company, where one of the two companies ceases to exist after being absorbed by the other company. The boards of directors of both companies must first secure approval from their respective shareholder bases. In 2006, Disney and Pixar completed a successful merger.

An acquisition occurs when one company (the acquirer) obtains a majority stake in the target firm, which incidentally retains its name and legal structure. For example, after Amazon acquired Whole Foods in 2017, the latter company maintained its name and continued executing its business model, as usual.

Tender Offer

A tender offer is a bid to purchase some or all of shareholders’ stock in a corporation. Tender offers are typically made publicly and invite shareholders to sell their shares for a specified price and within a particular window of time.

The price offered is usually at a premium to the market price and is often contingent upon a minimum or a maximum number of shares sold. To tender is to invite bids for a project or accept a formal offer such as a takeover bid. An exchange offer is a specialized type of tender offer in which securities or other non-cash alternatives are offered in exchange for shares. For example, Elon Musk has recently announced making a tender offer to acquire Twitter.

Proxy fight

A proxy fight refers to the act of a group of shareholders joining forces and attempting to gather enough shareholder proxy votes to win a corporate vote. Sometimes referred to as a “proxy battle,” this action is mainly used in corporate takeovers. For example, Microsoft Corporation made an unsolicited offer to buy Yahoo for $31 per share. The board of directors at Yahoo believed the offer by Microsoft under-valued the company, and, consequently, the board stalled any negotiations between Microsoft and Yahoo executives.

Why should I be interested in this post

This post is interesting for everyone who would like to work in investment banking and who would like to kick start their career by doing a summer internship.

Useful resources

Oaklins Atlas Capital

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About the author

The article was written in August 2022 by Basma ISSADIK (ESSEC Business School, Global Bachelor of Business Administration, 2019-2023).

A quick presentation of the M&A field…

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A quick presentation of the M&A field…

Louis DETALLE

In this article, Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023) explains what does an M&A daily life looks like.

What does M&A consist in?

Mergers & Acquisitions (M&A) is a profession that advises companies wishing to develop their external growth, i.e. growth through the acquisition of a company or through a merger with it. M&A mandates are therefore carried out on the side of the company that wishes to acquire another company, “buy-side”, or on the side of a company that wishes to be acquired, “sell-side”.

What does an analyst work on?

The tasks of an M&A analyst are diverse and include, for example, drawing up a business plan, modelling different scenarios and strategies in Excel, and drafting information memorandums (IMs) on the various deals in progress. All these skills are then widely used for the mergers and acquisitions of companies, in the development of their external strategy, in their financial evaluation or in the analysis of databases. Overall, M&A allows you to move into any sector of finance and this is part of the reason why it is so attractive.

Why does M&A jobs appeal so much to students?

First of all, it is the dynamic working atmosphere that investment banking enjoys that also attracts young graduates. M&A is indeed marked by a culture of high standards and maximum commitment, with highly responsive teams and extremely competent colleagues. Working in a quality team is very stimulating, and often makes it possible to approach the workload with less apprehension and to rapidly increase one’s competence. The remuneration is also much higher than in other professions at the beginning of a professional career for a young graduate and it progresses rapidly. Finally, it is also the exit hypotheses that attract young M&A analysts.

What are the main exits for M&A?

Most professionals who started out in M&A move on to other types of activities where experience in this sector is required. This is particularly the case in private equity. After advising companies on their growth and expansion projects, the young investment banker has all the tools needed to work in investment funds. The skills are indeed transposable to the financial and strategic questions that private equity funds ask themselves in order to obtain a return on investment.

Switching to alternative portfolio management (hedge funds) is also a possibility. Hedge funds can invest in different types of assets such as commodities, currencies, corporate or government bonds, real estate or others. As a former M&A analyst, you have the skills to analyse the market and determine the assets that seem to be the most appropriate and profitable.

Finally, some former M&A bankers switch to corporate M&A, which involves determining which companies or subsidiaries the company should buy or sell. This can be a very interesting area as you have the opportunity to follow the acquisition of a company from start to finish and therefore take a long-term view of the company’s strategy.

Related posts on the SimTrade blog

   ▶ Suyue MA Analysis of synergy-based theories for M&A

   ▶ Louis DETALLE How does a takeover bid work & how is it regulated?

   ▶ Raphaël ROERO DE CORTANZE In the shoes of a Corporate M&A Analyst

   ▶ Basma ISSADIK My experience as an M&A Analyst Intern at Oaklins Atlas Capital

   ▶ Antoine PERUSAT A New Angle in M&A E-Commerce

Useful resources

Décideurs magazine Rankings for M&A banks in France (league tables)

About the author

The article was written in May 2022 by Louis DETALLE (ESSEC Business School, Grande Ecole Program – Master in Management, 2020-2023).

Analysis of synergy-based theories for M&A

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Analysis of synergy-based theories for M&A

Suyue MA

In this article, Suyue MA (ESSEC Business School, Global Bachelor of Business Administration, 2017-2021) analyzes the synergy-based theories for M&As.

This article is structured as follows: I will first share with my professional experience. I will introduce the concepts of M&A and a brief analysis of past M&A market activity. We then expose the different theories based on synergies emphasized by companies in M&A deals.

About myself

I have been interested in finance ever since I started my study at ESSEC Business School in 2017. By acknowledging more about finance, during my 2nd year of study, I decided to build up my career in corporate finance, focusing on the primary market. By sending around 400 resumes to different companies and banks, I finally worked in the field of M&A. Until now, I have finished four internships in the field of corporate finance, private equity, capital-raising advisory, and mergers and acquisitions (M&A).

In this article, I would like to share with you about some very important M&A theories based on synergies that most of companies decided to execute as effective corporate strategies.

Introduction

M&As are defined as consolidation of companies, and it refers to corporate finance, corporate strategy, and corporate management, dealing with selling, buying, or combination of different firms, which can create resources, financing, and business development to a firm to grow its business without the need of creating a new business entity. Normally, a merger occurs between companies that have related interests with a similar company size or market cap. In addition, a merger is commonly understood as a fusion of two companies, which the bigger and better company will remain its name and status while the other one will disappear and not exist as a unique business entity. Nevertheless, acquisition means that a company is going to pay a certain price (in cash or stocks) to buyout or acquire the target company’s part of or full of stock right, achieving the controlling right or assets of the company that is being acquired, but the legal person’s status will remain.

To put in a nutshell, based on the historical M&A transactions, the primary objectives behind a merger or acquisition are to create long-term shareholder value, achieve larger market share, and improve the company’s efficiency. However, obviously, there are also a great number of M&A activities failed to reach such goals or even ruined companies. According to the collated research and a recent Harvard Business Review report in 2021, the M&A’s failure rate sites between 70% to 90%, which is an extremely high figure even though the report takes all rage of business, culture factors, and objectives factors into considerations. Thus, it remains doubtful whether a M&A transaction can help company’s development and create shareholder’s value.

Nowadays, companies use M&A for various reasons because companies are always facing the issues of dealing with global competition, market globalization, and constant technology innovation. It is now a fact that M&A has become the most popular corporate strategy around the world. We may ask why the management and shareholder boards are using merger and acquisition to promote the company’s advancement and shareholders’ return instead of other strategies, such as doing investments and innovations. According to the aforementioned report, some finance professionals believe that such transactions create short-cut for companies’ growth and market share, since the companies do not need to start a business sector over again, in which the risk of running a successful business is high and the cost of capital is high as well. On the contrary if both buy-side and sell-side companies can find synergies that benefit each other, ideally, they will gain more revenues due to the positive reaction, and therefore create value for their shareholders. Thus, here I will dig deeper in the following theories and synergies to better understand the aim and purpose of M&A.

Figure 1. Number and value of merger and acquisition deals worldwide from 1985 to 2020.

Number and value of merger and acquisition deals worldwide from 1985 to 2020

Source: Institute of Mergers, Acquisitions and Alliances (IMAA)

Figure 2. Number and value of merger and acquisition deals in the United States from 1985 to 2020.

Number and value of merger and acquisition deals in the United States from 1985 to 2020

Source: Institute of Mergers, Acquisitions and Alliances (IMAA)

The figures above are about the number and value of M&A transactions in both U.S. and worldwide in the last two and half decades (1985-2020). The reason why I choose these geographic locations is because the global M&A transactions’ number and value can provide us the activity level of the market; secondly, the U.S. market has the most active level from all time, and therefore, by viewing such figures, it can provide us a very clear overview of the market. According to both figures above, both M&A’s value and transactions are increasing stably except three serious drops in year of 2000, 2008, and 2020. The first drop is because of 2000’s financial crisis that happened in most of developed countries; the second drop happened right after the U.S. subprime crisis, and the last drop just happened from years of 2019 to 2021, in which the whole world was shut down because of COVID-19 virus. A great number of big companies went bankrupt and most of financial institutions had to stop their operations. What is more, we can find that after each recession, the value and number of M&A transactions rebounded rapid to the average level and kept increasing the volume within the following years. As I mentioned previously, although M&As have a super rate of failure, the success rate of successful company’s transactions must surpass the risks involved. Consequently, it is not difficult to explain why companies are keeping entering M&A transactions.

M&A’s main theories

The history of mergers and acquisitions exists for more than a hundred years, and financial professionals and scholars came forward with a great number of merger and acquisition theories. Most of these theories are based on the motives and benefits of merger and acquisition, and several major models have been developed. The following part is a brief introduction of these theories.

Efficiency theory assumes that both the acquiring company and the target company are interested in maximizing shareholder value, that the merger is a value-adding investment for both the acquiring company and the target company; the total benefits of the merger (the sum of the values of target and acquiring companies after vs before the deal) are positive. Efficiency theories are powerful in explaining the motivation of mergers, but the exact motivation of mergers in terms of synergies and efficiency improvements requires further examination and analysis and is beyond the scope of this dissertation. The different sources of efficiency theory based on value addition can be divided into the following areas: management synergy, operating synergy, diversification and strategic synergy, financial synergy, and undervaluation theory.

Management synergy

Since there are differences between the management capabilities of any two firms, the merger and acquisition activity may enable the more efficient management capabilities to diffuse in the new post-acquisition firm, bringing about efficiency improvements. For example, a relatively efficient firm may improve the management and operations of the acquired firm by acquiring a relatively inefficient firm to improve efficiency, thus increasing the value of the acquired firm; or a firm with relatively poor management efficiency may acquire a firm with higher management efficiency to improve its own efficiency, thus acquiring the organizational capital unique to the acquired firm.

Operating synergy

Operating synergies assume that there are economies of scale and economies of scope, which are cost advantages reaped by companies when production becomes efficient, in an industry, and that through merger and acquisition, companies can improve their original operating efficiency. In this theory, merger and acquisition can create great value.

The scale of the enterprise before the merger is far from the economies of scale, and the enterprise entity (consortium) formed after the merger can minimize the cost or maximize the profit in production, personnel, equipment, management, and sales. On the other hand, through vertical mergers, enterprises at different stages of development in the industry can be combined to reduce transaction costs and obtain effective synergies. Economies of scope mean that companies can use their existing product manufacturing and sales experience to produce related add-on products at a lower cost. For example, in the automotive industry, additional production of small cars and various vans would benefit from the existing automotive technology and manufacturing experience.

Diversification and strategic synergy

Companies can diversify their operations through M&A activities, which can diversify risks and stabilize revenue streams and provide employees with greater security and advancement opportunities; ensure continuity of the corporate team and organization; secure the company’s reputation. For strategic synergy, the company can acquire new management skills and organizational costs through M&A to increase the ability to enter new growth areas or overcome new competitive threats.

Financial synergy

One source of financial synergy is the lower cost of internal and external financing. For example, companies with high internal cash flow and low investment opportunities should have excess cash flow, while companies with lower internal capital production capacity and significant investment opportunities should require additional financing. Therefore, merger of these two firms may have the advantage of lower internal capital costs. On the other hand, the combined firm’s ability to leverage debt is greater than the sum of ability of the two firms before the merger, which provides a tax saving advantage.

Undervaluation theory

This theory suggests that the most direct basis for M&A comes from the difference in the value of the target company as judged by different investors and market players, since there is no purely efficient stock market in the world, it is possible that market value of the target company is lower than its true or potential value for some reason. The main reasons for undervaluation are: first, the inability of the target company’s management to realize the full potential of the company. The second reason could be insider information, because the M&A firm has information about the true value of the target company that is not known to the outside world. Thirdly, the Q-ratio. This is the ratio of the market value of the firm’s securities over the replacement cost of its assets. When inflation persists, as the Q ratio falls below one, it is cheaper to acquire an existing firm than to build a new one.

Useful resources

Institute of Mergers, Acquisitions and Alliances (IMAA) M&A Statistics.

Christensen, C.M., Alton, R., Rising, C., Waldeck, A., (March 2011) The Big Idea: The New M&A Playbook Harvard Business Review (89):48-57.

Dineros-De Guzman, C., (May 2019) Creating value through M&A PWC.

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About the author

The article was written in January 2022 by Suyue MA (ESSEC Business School, Global Bachelor of Business Administration, 2017-2021).

In the shoes of a Corporate M&A Analyst

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In the shoes of a Corporate M&A Analyst

img_SimTrade_Photo1_Raphael_Roero_de_Cortanze

In this article, Raphaël ROERO DE CORTANZE (ESSEC Business School, Master in Management, 2018-2022) shares his experience as a Corporate M&A Intern.

My internship at Scor

In 2020 as an intern, I had the opportunity to join the M&A Team of the French Reinsurer “SCOR” for 6 months.

As this internship allowed me to develop both hard and soft skills as well as helping me devising my future career path, I think it would be interesting to share this experience with you, hoping it could help you or give you some ideas.

SCOR Paris

SCOR is the world’s fourth-largest reinsurer with 16.4€bn of revenue in 2020. As a reinsurer, SCOR provides insurance companies with a range of solutions and services to control and manage the risks they face through its three divisions: Property & Casualty Reinsurance, Life & Health Reinsurance, and Investment Partners (the institutional investor division of SCOR).

What is a Corporate M&A Analyst?

A Corporate M&A Analyst is a Financial Analyst who works within and for a company, in comparison of a M&A Investment Banking Analyst who works in an Investment Bank or a Boutique.

The Corporate M&A Team is responsible for overseeing and carrying out all the transactions (acquisition, divesture, etc.) of a company. The team is in direct contact with investment banks, which it mandates in the case of an M&A operations. The team is also in direct contact with the Executive Committee and/or the Board of Directors of firms. Corporate M&A Analyst also work with other divisions within the company.

On average, a Corporate M&A Analyst and the rest of the M&A teamwork fewer hours than in an investment bank. Nonetheless, workhours strongly depend on the number of transactions the team makes in a year, and a M&A process can still be very intense and demanding even in a company.

What does a Corporate M&A Analyst do?

The tasks of a Corporate M&A Analyst are usually divided into two parts, the first being M&A-linked tasks and the other linked to the other activities the Corporate M&A team is related. For instance, at SCOR, the M&A team was also responsible for overseeing Corporate Finance at group level. Thus, I also worked on internal projects such as a cross-border restructuring project. In other corporates, M&A teams can be merged with Investor Relations, Strategy or for instance being only responsible for M&A related issues.

M&A tasks consist of:

  • Performing financial modelling and valuation: with conventional valuation tools (discounted cash flows, trading comparables and precedent transactions, etc.) and industry-specific tools (dividend discount model, appraisal value – for the Insurance/Reinsurance industry for instance)
  • Carrying out competitive and market intelligence of the industry: at SCOR I monitored 20+ competitors and targets, while devising regular updates and case studies on insurance/reinsurance transactions (merger, divesture, IPO, etc.)
  • Assisting in the execution on deals: in an acquisition or divesture process, the main task will be to perform valuation from bank documents (Info Memos), data rooms and internal data (in the case of a divesture). Compared to an M&A Analyst in an Investment Bank, a Corporate M&A Analyst also works on and follow the integration challenges raised by an acquisition.

The main tools used by a Corporate M&A Analyst are similar to the ones used by an M&A Analyst in a bank: Excel and Powerpoint of course, but also financial data providers such as Bloomberg, Factset, S&P Global, etc.

How can you become a Corporate M&A Analyst?

The majority of Corporate M&A Analysts and their colleagues usually spend some time in an Investment Bank before joining a Corporate M&A Team. This is why the work habits of a Corporate M&A team are similar to those in a bank: high attention to details, same requirements in terms of mastery of Excel and Powerpoint, high expectations in terms of speed and quality.

Between a job at an investment bank a corporate job, a Corporate M&A position can be a good opportunity to get the best of both worlds: high level of technicity and knowledge of a sector, combined with a more manageable workflow. Furthermore, members of a Corporate M&A team have the opportunity to work on transforming deals for the sake of the company they work for. In comparison, Investment Banking Teams continuously switch from a client to another, from a deal to another, without having the corporate strategy dimension of a Corpor
ate M&A Team.

Key concepts

Trading comparable

A comparable company analysis (CCA) is a process used to evaluate the value of a company using the metrics of other businesses of similar size in the same industry. Comparable company analysis operates under the assumption that similar companies will have similar valuation multiples, such as EV/EBITDA. Analysts compile a list of available statistics for the companies being reviewed and calculate the valuation multiples in order to compare them.

Precedent transaction

The cost of a precedent transaction is used to estimate the value of a company that is being considered. The reasoning is the same as that of a prospective home buyer who checks out recent sales in a neighborhood.

Discounted cash flow

The discounted cash flow (DCF) method is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. A DCF valuation of a company gives the Enterprise Value.

Dividend discount model

The dividend discount model (DDM) is a quantitative method used for predicting the price of a company’s stock based on the theory that its present-day price is worth the sum of all of its future dividend payments when discounted back to their present value. A DDM valuation gives the Equity Value (or stock value).

Divesture

A divestiture is the partial or full disposal of a business unit which most commonly results from a management decision.

Property & Casualty insurance

Property and casualty (P&C) insurance provides coverage on assets (e.g., house, car, etc.) and also liability insurance for accidents, injuries, and damage to other people or their belongings.

Life & Health insurance

Life and health (L&H) insurance provides coverage on the risk of life and medical expenses incurred from illness or injuries.

Reinsurer

A reinsurer is a company that provides financial protection to insurance companies (basically an insurer of an insurer). Reinsurers handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ Basma ISSADIK My experience as an M&A Analyst Intern at Oaklins Atlas Capital

   ▶ Louis DETALLE A quick presentation of the M&A field…

   ▶ Suyue MA Analysis of synergy-based theories for M&A

Useful resources

Sources: Investopedia, Wikipedia, Corporate Finance Institute, Scor

About the author

Article written in April 2021 by Raphaël ROERO DE CORTANZE (ESSEC Business School, Master in Management, 2018-2022)