Strategy, M&A / JV & Implementation | Global Blog

Welcome to the Edge Advisory blog. Here you will find various opinion pieces on topical issues. Please let me know what you think and what suggestions for content you may have.

Planning & rigour in Asian M&A pay off.

Posted by admin on July 31, 2011 | No Comments »

A new KPMG study re-confirms that due diligence and planning & rigour in M&A integration pay off in ensuring deal value realisation, especially in Asia.

Looking at deals between June ’07 and July ’09, the study found that 40% of deals were value enhancing, 20% neutral and 40% resulted in value destruction (compared to global value destruction rate of 32%). The majority of deals are being done to increase growth, as opposed to the previous focus on cost reduction.

This new focus on growth, especially towards Asia, results in new requirements in M&A (and JV) value realisation which is borne out by experience and the study’s research:

Due diligence focused on future growth plans & how those plans will be achieved
Managing a greater shift to multinational M&A – bringing with it increased complexity & concentration on HR/people & cultural integration issues
Increased rigour in tracking, analysing & reporting on success of achieving growth & revenue synergies (including deciding from where in the organisation this is driven from)
Ensuring a drive for faster implementation / integration (depending on strategy) – which entails having a detailed plan in place to execute upon

While much of this is not new, it is important to re-iterate that increased concentration in a few areas can radically increase deal and shareholder value. Let’s see how Nestlé and Diageo (and indeed Chinese firms) do on recently announced deals.

Value from internal consulting groups?

Posted by admin on April 16, 2011 | No Comments »

Many global corporations use internal consulting groups. However, it is unclear that apart from consulting spend cost savings and talent development any other benefits are being achieved. In fact in some cases there is value destruction.

Clearly internal consultants cost less than external consultants do – saving 60% on an average day rate. Note that companies need to ensure they are cross charging costs rather than providing internal consultants “for free”. Internal groups are also great talent development vehicles; exposing consultants to a varied business areas, problems and senior stakeholders. The key is always to then place them into challenging roles in the business after their stint in internal consulting or risk losing them.

Critically, where internal consulting groups may fail to deliver is 1) in their ability to provide comprehensive and rapid output equal to or better than external providers can (as they are frequently more junior/inexperienced) and 2) in their ability to provide the required objectivity and external view point required to push for the most valuable strategies and solutions. Internal consulting team leads may not want to truly challenge their “clients’” if they know that the “client” is also their potential boss – thus frequently diluting the recommendation and the value of the engagement.

Thus the main question for the organisation. Is consulting spend savings and talent development via an internal consulting group more important than the value of the solution developed – and how are companies managing that balance?

Canada’s rejection of BHP Billiton’s PotashCorp bid a return to protectionism?

Posted by admin on November 7, 2010 | No Comments »

Canada’s rejection of BHP Billiton’s bid for PotashCorp on grounds that it did not offer a “net benefit” to Canada, as required under the Investment Canada Act, can hardly be said to be a return to a more protectionist past. It is however a reaction to recent sales of some of Canada’s crown jewels of mining and of the global importance of PotashCorp’s assets.

Canada, as did many countries during that period, responded to the energy crisis of the early 1970’s by creating a national energy company – in Canada’s case Petro Canada. They did this by buying up Canadian assets of companies such as Atlantic Richfield, Pacific Petroleum, Petrofina and downstream assets of BP and Gulf Petroleum. This process, and a period of energy protectionism, was quickly reversed with Petro Canada’s privatisation in the 1990s.

Canadian openness, high by any global standards, reached its zenith in 2006-2007 with the sale of Inco to Vale and Falconbridge to Xstrata in 2006 and of Alcan to Rio Tinto in 2007. The rejection of BHP’s bid is partly driven by a backlash to these sales but also by the size of PotashCorp and its strategic importance. It is one of Canada’s largest corporations and controls 20% of global capacity for an increasingly valuable commodity. An extremely small number of targets will be in this position.

This rejection is very much the exception and not the rule.

Notes from the London Business School Global Leadership Summit 2010

Posted by admin on July 6, 2010 | No Comments »

At this year’s London Business School Global Leadership Summit business leaders such as Shell’s Peter Voser, Nestle’s Paul Bulcke, Vodafone’s Vittorio Colao and Celtel’s Mo Ibrahim discussed emerging market opportunities and challenges. My key take aways:

- Shift in powerbase from the west to emerging markets will continue
- Western multinationals becoming more local in their approach
- Emerging market growth is not a zero sum game
- Increased reliance on “coopetition”

Similar to in last year’s event, there were few new insights. Western participants were keen to emphasize the win-win whereas emerging market panellists were optimistic that their time had come and that the trend of acquiring western brands, technology and process would continue.

Challenges remain, including those related to post merger integration which I referred to in a post in November. The capacity of emerging markets to absorb capital inflows, asset appreciation leading to inflation, poor infrastructure and government intervention are some others.

See London Business School for more as they add content from the event.

BP Oil Spill – A Shake Down?

Posted by admin on June 17, 2010 | No Comments »

The BP oil spill has now gone beyond most expectations and the mileage that US politicians have been able to get has increased. From Tuesday’s and today’s hearings one could not help but draw parallels between the US Congress and Russia’s successful moves on Shell’s Sakhalin assets.

Why Rex Tillerson had spoken to the US President about the crisis prior to any of the BP executives was noteworthy. Congressman Joe Barton’s comment of a “shakedown” of BP was helpful but represented a lone voice. It would not be unthinkable to imagine a case where US politicians use this as an opportunity to severely injure one of the few non-US based oil majors.

BP continues to be a strong company and Mr. Hayward did well in the hearing. However, given the above scenario, it would make sense to consider an orderly exit of the BP brand from the US. While clearly it is an important market, at least a legal separation or spin off, as Altria did with Philip Morris International in 2008, would make sense.

BP Oil Spill – An Opportunity?

Posted by admin on May 20, 2010 | No Comments »

While clearly a disastrous event, BP’s oil spill in the Gulf of Mexico presents opportunities both for investors and the oil industry.

Since the event of April 20th, one month ago, BP’s market capitalisation has fallen by almost 20% (~$30bn). While admitedly the market has also dragged its peers down with it, the valuation of BP is compelling (yield of 7.4%, forward PE of 6). Even if BP’s costs related to this spill end up being four times as high as the Exxon Valdez cost of $3.8bn, the market will still have overreacted. Keep in mind that while oil is now finally making its way to shore, BP has recovered over 187,000 barrels of oil/water mix on the surface, compared with a much less effective response in the Exxon Valdex case.

As for the oil industry, the public will begin to realise that the technical response to this event is as good as it could ever have been – and that the situation is much more like Appollo 13 than anything else. Similarly to with Appollo 13 and the Challenger disaster, while clearly many risks can be forseen, all possible risks cannot. With a new understanding of the technology required at these depths, and using all that BP and the industry have learnt from this event, there is no doubt that the industry will become safer. This is an opportunity for the well funded and technically advanced IOCs, including BP.

While BP has had issues related to safety in the past, you cannot help but commend them on this reponse. Were I an employee I would be proud. Were I an investor I would be an buyer.

The Future of Chinese M&A?

Posted by admin on November 27, 2009 | No Comments »

The acquisitive nature of Chinese companies has been making news over the past several months. Outbound M&A continues to increase. According to a recent Deloitte and mergermarket report, Chinese overseas M&A flow quarterly value increased from US$1.3bn in Q1 to US$8.9bn in Q3.

Known brands such as Volvo, Hummer and Delphi in automotive and resources companies such as Addax Petroleum, Tuas Power and Emerald Energy have been, or are in the process of being, acquired.

While this is to be applauded, how will success look like in 2-3 years?

M&A focus will push further into consumer industries as Chinese companies move to acquire brands and marketing and technology expertise. In those types of acquisitions, as opposed to when buying asset rich resource companies, the most challenging elements of post merger integration will become crucial. Namely, creating a shared vision, aligning leadership, governance and the organisation and moving to a shared company culture – all the while maintaining positive revenue momentum and extractive cost synergies.

Until Chinese companies gain more exposure to dealing with cultural diversity and to foreign markets, real success may, initially, be short term in nature.

Alternative Energy – A VC Approach?

Posted by admin on September 20, 2009 | No Comments »

International oil companies (IOCs) are addressing alternative (or renewable) energy in different ways; from largely ignoring it (ExxonMobil) to concentrating on specific areas (Shell with biofuels) to being schizophrenic in their approach (BP).

While it is clear that our world will continue to rely heavily on fossil fuels for the next several decades, it is also clear that alternative energy is the future. Climate change (driving consumer and legislative changes) and improving economics relative to traditional fossil fuels are helping to drive this future.

How should these companies respond? By acting like VCs.

As in the internet start-up days of the late 90’s it will be extremely difficult to spot the eventual winners – and large corporations have traditionally been poor at this. I would suggest creating a fund in partnership with select JVs. Doing this will ensure that IOCs can both monitor upcoming technologies and companies and profit from the innovations which will undoubtedly start to make up a greater and greater proportion of revenues.

Corporate Decision Making?

Posted by admin on August 15, 2009 | No Comments »

How does governance and decision making happen in your company?

If it is like most large corporates, it happens very slowly and inefficiently. The absence of a “decision making culture” in many companies can be astounding, especially in companies that, from the outside, you would think are very well managed.

Management by committee has become prevalent. Committees which, almost by definition, cannot in themselves make strong, required decisions and related action plans. When have you last heard that “the committee (or leadership team) is accountable for x or y”? An individual can be accountable – committees cannot. In addition, on a committee (or leadership team) when key decisions need to be made it is a very brave individual who sticks his or her neck out against perceived consensus.

So what to do? It is all about leadership at the end of the day. How leaders are able to take themselves out of their comfort zone, to drive single point of accountability and to encourage dissenting views amongst their leadership teams.

Notes from the Global Leadership Summit

Posted by admin on July 2, 2009 | No Comments »

Jeff Immelt, Willie Walsh, Unilever’s Paul Polman and RBS’s Stephen Hester were amongst political and business leaders at the London Business School’s GLobal Leadership Summit on Monday. My key take aways were:

- Most leaders relatively pessimistic about a quick recovery
- Highlighted using the crisis to drive for innovation, differentiation and take share/grow
- Also to re-set the company – new business models, structures, talent
- See opportunities in the East vs. West
- Jeff Immelt and Willie Walsh impressive in terms of openness and directness

While perhaps not full of groundbreaking ideas, I think you will find my notes from the day interesting to browse through and perhaps share a few thoughts with your leadership teams. Download them here.

I was struck most by the apparent willingness to take this “crisis” as an opportunity to become more aggressive in terms of driving for growth and innovating. While this is something I would tend to advise, I wonder how this in fact translates into what companies are actually doing. We hear a lot about cost cutting and “re-setting the organisation” but not yet about pushing for growth. Something to look for as winners and losers start to emerge.

See London Business School for more as their site is updated.