Articles from Cass Knowledge

Five lessons for M & A lift-off

For chief executives, mergers and acquisitions are like rocket fuel. They can blast their companies to new heights or explode spectacularly on the launchpad. With so much at risk, how can corporate leaders improve their chances of getting it right? One answer could be Cass's M&A Research Centre (MARC).

Since it was founded in 2008 it has produced a series of ground-breaking insights into high-stakes dealmaking. As the Centre celebrates five years at the forefront of M&A research, here are five lessons every CEO can learn.

1. Cheap isn't always cheerful
Buying cheap doesn't guarantee long-term returns. MARC's first major research report, The Good, the Bad and the Ugly: A Guide to M&A in Distressed Times, showed that buying distressed assets may not be beneficial over time unless you have key sector knowledge. "We found that certain criteria are vital to the distressed deal," says Professor Scott Moeller, the Director and founder of MARC. "Acquirers who bought firms in related industries tended to be more successful in realising long-term value than those who bought from the outside. As the number of distressed assets available continues to rise, it is [a lesson] worth remembering."

2. Make an impact
Chief executives in Europe perform better if they acquire early on. Those who do a significant deal in their first year are more likely to outperform those who do not, according to MARC's 2010 study of CEO performance across Europe. "Other studies have found that CEOs stay in office for around four to five years on average. That isn't a long time," says Professor Moeller. "If they want to make a positive impact from the start, a large acquisition early on in their tenure may well be it." However, you can have too much of a good thing: more than one acquisition in the first year could lead to a fall-off in performance. "Be wary of overstepping the line," Professor Moeller warns.

3. Look east
MARC's annual M&A Maturity Index, which ranks 148 countries in order of their ability to attract domestic and cross-border deals, is showing increasingly that Asian and Middle Eastern countries are rising fastest. Anna Faelten, Deputy Director of MARC, says: "Our latest index shows five Asian countries in the top ten, with Singapore the highest in second place, just behind the US in terms of maturity." The idea for the index, she says, was to look for growth opportunities in emerging markets. "With growth in developed nations stagnating somewhat, it is important to point out the future M&A hotspots. Volume is picking up and countries such as Malaysia and the United Arab Emirates are emerging as rising stars."

4. Maintain corporate momentum
Corporates are likely to become acquisitive after a public listing - and those that remain active after going public outperform firms that stay dormant. MARC's 2011 study, The First 1,000 Days in the Life of an IPO, conducted with its sponsors and Mario Levis, Professor Emeritus of Finance at Cass, found that a third of companies that go public make an acquisition in the first three years. The second corporate event of 46 per cent of these is also an acquisition and more than half of these then acquire for a third time. The benefit is clear, says Anna Faelten. "Firms that stay corporate-event active after an IPO outdo those that remain passive by 25 per cent, while those announcing more than one event do even better."

5. Value-adding takeovers
A MARC study for the UK Department of Business, Innovation and Skills in 2011 found that, on average, domestic M&A benefits the economy by almost £180 million per deal.
However, the results from longer-term analysis show a less rosy picture: most UK companies are unsuccessful in adding value through acquisitions. "We see that M&A continues to be a very risky strategy for corporates", says Anna Faelten. "However, those who get it right have the possibility to generate significant levels of value."

Data for dealmakers
"The current uncertainty pervading global markets has made firms cautious about M&A," says Susan Kilsby, former Head of M&A at Credit Suisse who chairs the advisory board of MARC. "The Centre gives professionals the chance to spot the trends and factors at play in what can often be an unclear environment."
The ability to capture robust data and translate it into commercial insights for dealmakers is what makes MARC unique. Opened in 2008 by former investment banker Professor Scott Moeller, it is the first centre of its kind at a major-league business school to conduct research into the global M&A industry. AXA Private Equity, Credit Suisse and Ernst & Young form a triumvirate of senior sponsors with Mergermarket and Towers Watson being sponsors of the Centre.
According to Professor Moeller, the involvement of such highly respected players sets MARC apart. He says: "They play an active role in the research process by functioning as a sounding board for our ideas and, indeed, in identifying some of the most challenging issues in M&A."
The sponsors, in return, get access to world-class research. "It's a mutually beneficial relationship," he says. "We blend industry experience with academic expertise to produce research on topics that really matter in the boardroom."

Sean Lightbown is an Assistant Editor at The Mergermarket Group. He can be contacted at