M&A in the era of complexity

  • Share
  • Mah Kah Loon, Partner, Transaction Advisory Services, EY Corporate Advisors Pte. Ltd.
  • Evelyn Ang, Managing Director, Atlas Asia Law Corporation
  • Sandie Wun, Partner, Transaction Tax Services, EY Corporate Advisors Pte. Ltd.

In a period of corporate stress and uncertainty, companies should look to mergers and acquisitions (M&A) as a necessary tool to create value, address gaps in the business and enhance service offerings. Divestments of non-core assets is another alternative to redeploy proceeds to the core businesses.

At this session of Board Agenda Series, we discussed why M&A is a priority for boards in this uncertain age, and the related legal and tax implications.

Key highlights

  • The 19th edition of the EY Global Capital Confidence Barometer showed that 45% of Asia-Pacific respondents intend to pursue M&A to fuel their growth ambitions over the next 12 months.
  • Companies should leverage on acquisitions or divestments to deploy their capital more efficiently to spur growth, expand, achieve synergies and diversify revenue streams.
  • Digital disruption is a key driver of growth in 2019 as firms seek competitive edge through tie-ups relating to artificial intelligence, big data analytics and other technology.
  • Key M&A trends include:
    • Initiation of tender process by sellers to maximize value.
    • Conduct of vendor due diligence by sellers.
    • Use of “locked box” price structures.
    • Reliance on representations and warranties insurance.
  • A compelling, sustainable value creation plan is well-articulated, fully resourced, agile and adaptive, and future-proof.
  • With ongoing regulatory developments and disruption in the business landscape, companies choose to either pause – due to regulatory uncertainty, especially in the emerging markets, or integrate with its acquired companies after the earlier phase of M&A; or proceed – to quickly gain competitive advantage when the opportunity arises to defend against future disruptors.
  • Rigorous capital allocation, including best practices such as focusing on a small number of metrics that reflect an outside-in perspective and tying directly to creating shareholder value, and establishing a cash culture that prizes cash flow, can help to drive competitive advantage and increase returns.
  • To enable strategic growth through better integrated and operationalized acquisitions, joint ventures and alliances, some key board considerations include leveraging advanced analytics to identify the right assets for purchase, an integration plan for change management to realize the most value from the transaction, and clearly articulating the integration vision and strategy.
  • When looking to divest, boards are responsible for crafting the value story and deal model, buyer marketing, tax attribute optimization, and carving out financials and operational separation plans, with the objective of limiting disruption, managing remaining cost structures and focusing on future growth.

Further thinking for boards

  • How well-prepared is your company to outperform competitors in a recession?
  • Have past acquisitions earned more than their cost of capital?
  • Is your company able to fund all good investment opportunities?
  • Which competition law issues should be addressed before embarking on a transaction?
  • Can your company respond positively to an activist shareholder’s critique based on its current business strategy?