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Several big pharma CEOs talked bullishly about deal making during quarterly earnings announcements in early 2022. In this series, we are joined by industry thought leaders to discuss the key developments and issues shaping the future of global transactions. Insight | Thought Leadership Asia Pacific DealSCAPE A series of reports exploring the defining characteristics of transactions, using the SCAPE framework, to understand legal complexity and stress test plans in an evolving landscape.

At its current pace, 2022 is set to be the slowest year for mergers and acquisitions (M&A) since 2018. By the end of August, the combined value of 2022’s acquisitions barely scraped half those seen in 2021 — itself muted relative to 2020 and 2019 (Fig. 1). Pfizer’s $11.6 billion acquisition of Biohaven Pharmaceuticals in May is the high point so far in 2022, marking a flurry of mid-year deals each worth over $1 billion . EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.

Unlock value across the M&A deal life cycle

When acquisitions fail, it’s often because the asking price for the target company exceeds these metrics. They may seek economies of scale, diversification, greater market share, increased synergy, cost reductions, or new niche offerings. Let’s suppose that after the acquisition, WhatsApp’s profitability grows at the same rate that Facebook’s did in its first eight years. Facebook lost money for the first five and then ramped up to $2 billion in operating income by its eighth year. If WhatsApp broke even for 2015–2019 and then achieved earnings growth like Facebook’s, Facebook shareholders would see an acceptable return on the investment for the first time in 2022. But to do that, WhatsApp would need the eighth-highest EBITDA in the world of software companies, trailing only Microsoft, Oracle, SAP, Google, IBM, Facebook, and Tencent.

Despite that $138 million loss, it’s unclear that WhatsApp would have been capital-constrained without Facebook. This was not like the acquisition of Oculus, in which Facebook conferred singular status on one of a number of virtual reality contenders. WhatsApp was already by far the leader in global messaging, with 465 million users, when Facebook decided to acquire it. But acquirers who understand they’re actually buying customers can avoid disastrous deals and find ones that work. The only way to imagine it breaking even is to further assume that without Pixar, Disney’s combined studio entertainment and consumer businesses would have declined by 25% over the period.

Acquisition vs. Merger

As of August 2022, the largest ever acquisition was the 1999 takeover of Mannesmann by Vodafone Airtouch plc at $183 billion ($297.7 billion adjusted for inflation). AT&T appears in these lists the most times with five entries, for a combined transaction value of $311.4 billion. Mergers and Acquisitions are notated with the year the transaction was initiated, not necessarily completed. When a company is looking to expand, one way many business owners consider doing so is through the acquisition of another similar business. An acquisition is a great way for a company to achieve rapid growth over a short period of time.

But in addition, none of them understood their new markets, which contributed to the ultimate failure of those deals. In 2006, an Ansarada Data Room was used to facilitate the $5 billion recapitalisation of James Packer’s company, PBL Media Limited. The deal saw the media giant sell half of its media assets, including the Nine television network, to private equity investors. The move allowed the company to ‘bankroll its ambitions in gaming and capitalise on the federal government’s changes to media ownership laws’ .

Strategy and M&A survey results: Global Capital Confidence Barometer

For example, when a company uses an acquisition to enter an attractive market, it’s generally in “take” mode. Microsoft and Google wanted to get into smartphone hardware, HP wanted to get into enterprise search and data analytics, News Corp. wanted to get into social networking. When a buyer is in take mode, the seller can elevate its price to extract all the cumulative future value from the transaction—especially if another potential buyer is in the equation. Look for ways to give value to the acquired company rather than take it—by being a smarter provider of capital, offering better managerial oversight, transferring a skill, or sharing a resource.

Whether you are integrating or separating an entity, we can develop a plan to deliver on the anticipated business interactions. This includes running integration-assessment workshops to developing customer retention plans. Our target screening approach can help you identify acquisition targets.

M&A integration insights

Then, we can pinpoint ways to diversify or increase market differentiation. We can help create confidence by advising and supporting your organization’s boards, management teams and stakeholders to manage crises, effect https://www.wave-accounting.net/ turnarounds, and deliver restructurings. To help you drive growth and improve your competitive positioning, we can work alongside your senior executives to define strategic objectives that align with corporate strategy.

• You must take these potential pitfalls into consideration before pursuing an acquisition.
• M&A may hurt the image of the new company or damage the existing brand.
• A competitive aviation sector is vital for a strong economy and significant parts of Australia’s tourism and hospitality sectors relied upon it.
• Hostile acquisitions don’t have the same agreement from the target firm, and so the acquiring firm must actively purchase large stakes of the target company to gain a controlling interest, which forces the acquisition.
• In fact, Google spent $1.65 billion purchasing YouTube just over a year later.

Improve cash flow and enhance profits with the help of our specialists. Together, we can create value by identifying, planning, and applying performance improvement initiatives. Get insights that help turn critical issues into opportunities for growth. With vast experience in valuing, modeling, and analyzing business interests, we can help you thrive. We can help you understand the potential risks and rewards of a divestiture. We can assess your situation and help support your negotiating position to maximize the sale price and execute the deal with minimal disruption. Our global network of specialists can provide extensive industry knowledge and experience to help you confidently navigate the complexities of uniting organizations.

Acquisitions may lead to employees duplicating each other’s duties. When two similar businesses combine, there may be cases where two departments or people do the same activity. M&A transactions, therefore, often lead to reorganization and job cuts to maximize efficiencies. However, job cuts can reduce employee morale and lead to low productivity.