‘Serial cross-border transactors’ add value, beating market returns by 67%
London, 5 December 2011 – New research released today by Ernst & Young finds that organizations which undertook a series (three or more) of cross-border transactions beat the average market return by 67 per cent, over a five year period since the deal emerged – a clear sign that mergers and acquisitions (M&A) have added value.
The Rise of the Cross Border Transaction: The Serial Transactor Advantage, is an analysis of 332,532 acquisitions by organizations, conducted with the Cass Business School, of which there were nearly 3,000 of these series of deals, also shows a clear difference in returns between those series of transactions focused primarily domestically, which beat the market by 24% over five years and cross–border strategies, which produce nearly three times as much value.
Robin Jowitt, transaction advisory services partner at Ernst & Young LLP (UK), says:
“Our analysis shows that, for those with the right approach, there is a “serial transactor advantage” around cross-border deals that will deliver far stronger returns than either only transacting domestically, or simply sitting on ever-growing piles of cash earning negligible interest rates.
“The value of the benefit of doing cross-border transactions has not had the publicity it deserves. For those businesses that are willing to develop the skills and experience to launch these kinds of M&A initiatives there is an untapped opportunity.”
During the last two cyclical peaks in 2001 and 2007, cross-border activity reached 27% and 26% of the total respectively. Few would claim that 2011 is a typical peak year, so in this context, it may surprise that 25% of deals so far this year have been cross-border.
Jowitt says: “While fluctuations in currency value may have had an impact, this would nonetheless suggest that cross-border activity, at around a quarter of overall levels, may be becoming the norm.”
Emerging markets deals
In the first nine months of 2011, acquisitions of emerging market companies constituted 40% of total global deal volume. This represents a doubling of levels over the last decade. While, so far this year, 21% of deals have been by emerging market acquirers.
The analysis of transaction patterns shows, average deal values begin to rise sharply around three to five years after M&A first emerges in key developing markets. Those that undertake a series of deals in nascent markets now, are therefore likely to reap rewards, while others struggle to find growth.
Jowitt continues: “While acquisitions in emerging markets are far from new, the trend for rapid-growth market companies to acquire overseas is less well established. With strong growth, strengthening currencies and a desire to obtain brands, technology and market access, it is hardly surprising that those in emerging markets are increasingly buying in mature economies and in other rapid-growth markets — sometimes as part of a series of deals.
“Having an effective emerging market strategy is an absolute necessity for leading companies today. A balanced business portfolio needs to have an emerging market presence as well as mature market operations.
“The Asian emerging markets are among the most attractive – with their high-growth potential offering some protection against current volatility in mature markets, but buyers will pay commensurately higher prices.”
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About the report
This report is based on analysis undertaken during September 2011 using public data from Thomson SDC Platinum. A total of 332,532 acquisition of control transactions were analyzed during the course of the research.
Acquirers having undertaken a series of largely “cross-border” transactions are defined as those with at least 50% of all acquisitions in the program being cross–border. Acquirers undertaking a largely “domestic” M&A series are defined as those with a majority of domestic deals in their program.
To evaluate the long–term performance of acquirers, a buy–and– hold methodology has been applied, where monthly Total returns of each acquirer were adjusted to the MSCI World monthly Total return for the corresponding period. The results on acquirers’ outperformance are statistically significant throughout.
In total, our sample of global acquirers includes 2,912 corporates (i.e., “serial transactors”) that had performed three or more acquisitions (totaling 12,869 acquisitions) with a minimum size of 1% deal value to market value of the acquirer in any given five-year period from 1995 to 2010.
About Ernst & Young
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This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.
To evaluate the long–term performance of acquirers, a buy–and– hold methodology has been applied, where monthly Total returns of each acquirer were adjusted to the MSCI World monthly Total return for the corresponding period. The results on acquirers’ outperformance are statistically significant throughout
In total, our sample of global acquirers includes 2,912 corporates (i.e., “serial transactors”) that had performed three or more acquisitions (totaling 12,869 acquisitions) with a minimum size of 1% deal value to market value of the acquirer in any given five-year period from 1995 to 2010.
