In a February 2021 report, Morgan Stanley’s global head of M&A, Rob Kindler said: “All the elements are there for an active M&A market in 2021, from corporations looking for scale and growth to private equity firms and special-purpose acquisition companies (SPACs) looking to invest capital.”
Dick Albersmeier, global co-head of M&A at JPMorgan added that “M&A is no longer an add-on but an important part of a company’s value story. More and more clients feel comfortable taking calculated risks, driving their M&A agenda forward to build the future of the company.”
Just what exactly is driving M&A activities, particularly in Asia, and what is the role of the CFO, particularly in these uncertain times.
He explained that trying to grow organically is good, but it takes too long sometimes. “Scaling up very quickly is a fast way for a company to increase its valuation. Increasing scale and taking advantage of economies of skills are just as important,” he added.
Other benefits include acquiring skills competencies and customer locations very efficiently without the risks of doing it yourself are two additional reasons why companies embark on M&A, according to Foo.
Changing rationale for M&A
Foo said that before 2020, companies that were undertaking M&A were doing as part of their inorganic strategy. For financial investors like private equity firms the considerations for M&A including the sustainability of the business, being recession-proof,
Since 2020, these same considerations remain valid but with added considerations such as being COVID-proof – being able to weather events like COVID.
“The other (new thing) is M&A execution. Travel and social restrictions have radically changed the way M&A is being executed,” said Foo. “M&A cannot be stopped for an extended period. Human beings being who they are. They have adapted to the situation. Today, M&A work is being done virtually.”
The M&A silver lining of COVID-19
The expression “every cloud has a silver lining” suggests that something positive can come out of a gloomy situation. COVID-19 is no different. Big tech firms, including Microsoft, Apple and Amazon, were clear winners according to the FT Series, Companies prospering in the pandemic.
Foo opined that (some) companies have done well during COVID-19. He expressed surprise that the volume of M&As has not dipped significantly during the pandemic and concluded that despite all the challenges companies are still willing to buy and the companies that have attracted investments have shown even more value during COVID-19.
The digitization (side) story
Foo acknowledged that the digital transformation formed long before COVID-19. He opined that many of these strategies were laid out with a three to five-year window for execution.
COVID-19 shrunk that to six to nine months. “Because of COVID-19 a lot of companies were forced to push ahead with these strategies in an accelerated fashion helping them achieve things like better efficiency and higher productivity.
ESG – the unexpected beneficiary of COVID-19
Environmental, Social, and Corporate Governance (ESG) has been around for years. We often hear it described as a company’s commitment to society – aka charity or philanthropic work.
Within the investor community, COVID-19 is seen as the sustainability crisis of the 21st century – a wake-up call to decision-makers to prioritise a more sustainable investment approach.
Foo believes that COVID-19 did not bring about ESG but rather enhanced it. Despite being a buzzword today, “even if you don’t have an ESG reporting but at least having an aspect of reporting your ESG matrix helps a company be in the radar of investors,” he opined.
According to Foo, investors are looking to put funds in companies that are doing good.
Role of the CFO in M&A
Sometimes called a corporate development team, the M&A team either falls under the oversight of the CEO or CFO. Foo believes that regardless of where this team sits in an organisation, the CFO’s role remains unchanged. He or she will be involved in the financial aspects of any M&A activity, whether it’s from the buy or sell-side.
“Things like financial due diligence, including quality of earnings, making sure that whatever numbers are being shown they are real and sustainable,” he added.
The other important element is synergy. Foo acknowledged synergy to be more challenging to quantify, particularly given that a CFO is viewing synergy between companies from a ‘helicopter’ view.
“Imagine how the two companies will combine, what are the potential costs and revenue synergies, as the businesses merge,” he explained.
Finally comes valuation. The CFO needs to work alongside the CEO to determine the value of the M&A to both sides of the party. “What is good value? How do you defend that value to anyone? I think those are key aspects for a CFO to find the answers to,” concluded Foo.
Click on the PodChat player and listen to the FutureCFO dialogue with Foo on the role of the CFO in M&A activities post-COVID-19.
- What is Everise?
- Everise is no stranger to M&A. Why do organisations undertake M&A?
- Priorities of M&A – before and during COVID-19?
- What has changed for the good?
- Who leads an M&A process or what is the role of the CFO in M&A?
- What are the qualities/experiences/attitudes important for a CFO to have during M&A?
- What can we learn (if any) from 2020 as it relates to M&A?
- Your advice to other CFOs (either buying or selling) who may be in an M&A journey.
Everise is a technology-enabled global outsourcing firm with expertise transforming the customer experience for healthcare and technology brands.