M&A

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).

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

Related posts on the SimTrade blog

   ▶ All posts about Professional experiences

   ▶ Basma ISSADIK My experience as an M&A/TS intern at Deloitte

   ▶ Anna BARBERO Career in finance

   ▶ Alexandre VERLET Classic brain teasers from real-life interviews

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)