D.O.G. on M&A

An interesting view.
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d.o.g.

Forum Sage

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Posts: 810
Registered: 10-12-2003
posted on 8-5-2007 at 05:06 PM



Quote:
which companies in SGX has emerge successfully from its M&A activities and what are the factors we should look at to evaluate M&A

From my limited experience, it seems that successful M&A activities occur mostly when the target is a lot smaller than the buyer. This means:

1. The buyer can flood the target with its own staff to impose its corporate culture;
2. The buyer can spend more money to cope with unforeseen issues; or
3. The buyer is only interested in a key technology, a key market, or a key customer, and is willing to write off the rest of the target's business.

Mergers of equals seldom work because of ego and wallet issues. The target's top managers are not willing to get demoted, the target's corporate culture doesn't fit well with the buyer, the buyer doesn't have enough spare money to fix the unforeseen issues, etc.

There are many companies that have pulled off successful M&A exercises. Any time you see an announcement that the company has purchased another company for $X, and the transaction does not require shareholder approval, that's one M&A that is likely to work out. Too many such cases to count, really. But if the target is big enough to require shareholders' approval, it's probably also too big to pull off.

SingTel and DBS survived their respective acquisitions because they had very deep pockets. So they could and did spend a lot of extra money fixing them up. SingTel seems to have had more success. DBS clearly didn't get its money's worth, as shown by the writeoff it took in respect of the Dao Heng acquisition.

Raffles Education has so far pulled off its M&A activities by buying much smaller players, simply to get their content/licenses. These seem to be what Buffett calls "bolt-on acquisitions" which can fit into the existing business. I doubt Chew Hua Seng retained much of the people or the business model in the targets - if he did, it would have been harder to turn their finances around. Oriental Century seems to be the only one where he's definitely kept the original managers.

The usual disclaimers apply.