Partner, SiCW Theme Owner for Acquiring Growth in a Low Growth Environment
A number of companies looking at their domestic markets, with low growth, are looking further afield. Many are thinking about new markets, looking at the BRIC countries.
One aspect of looking at emerging markets is the extent to which the competition has already got there. Many clients are moving from say Brazil to Columbia, from China to Vietnam, to find value and look to see competitive growth markets.
What this means is that businesses probably haven’t got their own capability in those markets and are thinking about how to do JVs and strategic alliances. Thinking about how they are going to fund that growth. How to maintain positions in emerging markets and really tap into the growth.
Looking at strategic options will be another part of looking at the growth strategy. Whether to do a new market entry through setting up a new business yourself or to acquire. Clearly these are the considerations that many businesses think about.
Our businesses and our clients are tending to look at future diligence, rather than the historic version that we know and love. One key fact is we’re finding that up to 80% of the value of the business may be in the future rather than the past.
In particular, thinking about buying a business now, companies are faced with buying a hockey stick forecast, performance improvement plan that’s half way through, and then thinking about synergies, probably at the transformational end. All in all, the value is in the future rather than the past.
One aspect of this new market is how do we get the banks comfortable with funding the acquisition? Whether it’s by underpinning the revenue projections with commercial due diligence, thinking about market upsides through operational diligence, and then thinking about how we understand the level of synergistic benefits that can be quantified.
There are many statistics about post-deal success or failure. One thing is clear, with all the value based on what we do in the future, there’s a much greater need to really execute that plan. Integration and maximising the benefits through a smooth transition. Ensuring that stakeholder communications, culture, and other softer skills are looked at with as much rigour as the more hard, synergistic, benefits.
When looking at the strategy for buying businesses, one aspect that’s increasingly important is whether to go hostile with a bid for a public company. This may not be without challenges, but may be the only way to get a new company into the sights and really execute on a transaction. A key reason to do this might be that the share price of that particular target could be as much as 50% lower than it was 2 years ago.
This creates a real opportunity to seek value but, obviously, the selling company may consider your bid to be opportunistic. Since Cadbury, and regulations that followed, this can be an increasingly difficult task but, if executed correctly, can really add value to share holders.
One other area to consider will be competition issues. How do you overcome the regulatory problems maybe in the EU or your domestic market? Thinking around what you might need to divest in order to get through the remedies and satisfy the regulators.
In these market conditions Boards really need to be focusing on 3 things when thinking about inorganic strategies. Firstly, future diligence – how to value the future. Secondly, how to execute on your strategic options. And third, and possibly most importantly, how to integrate the business once you get hold of it.
These are the things you need for acquiring in a low growth environment.
Acquiring Growth in a Low Growth Environment Mindmap (PDF 603 KB)
KPMG Europe LLP, a UK limited liability partnership, is the legal entity which effectively controls a number of the independent KPMG member firms that have elected to merge with it. KPMG Europe LLP is part of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. KPMG Europe LLP and KPMG International provide no client services. No member firm that is part of KPMG Europe LLP or any other KPMG member firm has any authority to obligate or bind KPMG Europe LLP, KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks of KPMG International.