2022 has been an exceptional year for Business Mergers and Acquisitions (M&A). Geo-political uncertainties have hindered economic progress, but also presented new opportunities for dealmakers. With the ever-evolving economy and advanced technology, markets have dealt with increased competition and availability of capital. Businesses now require faster and smoother transformations.
With the past as a yardstick, businesses that make acquisitions during a downturn, find better shareholder returns. Private equity has risen with M&As and displays a dynamic hold for the future.
Highly geared companies regularly assess strategies to review which business units need to focus on re-visioning opportunities.
According to PwC, over the next 12-18 months, 44 percent of executives plan to drive growth by hiring specific-skilled talent.
The biggest global mergers and acquisitions of 2022 are reshaping the business world.
C-Suite leaders have experience streamlining takeovers while keeping a close eye on protecting stakeholder interests and trimming costs. In the last five years, businesses have gained expansions and resurgence through deals.
It is important to note that all mergers and acquisitions are not successful. Some can be detrimental too. C-Suite leaders should know how to avoid the fall of mergers. It is of grave significance to evaluate the potential advantages and added risks before proceeding.
MERGERS VS ACQUISITIONS: WHAT IS THE DIFFERENCE?
Mergers and acquisitions are strategic alliances aimed at strengthening a company’s assets, market position, financial strength, or technological prowess. They are also used to increase supply chain effectiveness, expand into new markets, or make more efficient use of resources.
While M&As are used interchangeably, there is a difference in their representation.
When two companies join together to form a single entity, it is called a merger. For instance, eBay and PayPal merged vertically in 2002.
Whereas when one company establishes ownership after purchasing another company, it is an acquisition.
For example, one of the biggest acquisitions that has experienced soaring success is Google’s acquisition of Android in 2005.
A few types of M&As are:
Mergers: Horizontal mergers, Vertical mergers, Conglomeration, Product-extension mergers, Market-extension mergers, Purchase mergers, and Congeneric mergers.
Acquisitions: Consolidation acquisitions, Tender offers, Asset acquisitions, Management acquisitions (MBOs), and Hostile Takeovers.
WHY DO MERGERS AND ACQUISITIONS HAPPEN?
It’s justified as a need to enhance the financial performance of businesses and reduce the risks of the ever-changing market. How do M&As help businesses and what drives the rate of success of them?
Here are ten reasons why a company might be motivated to pursue M&As:
To Optimize Tax Liability:
It does not reflect well but most M&As are motivated by the characteristic of avoiding additional taxes. It would never be mentioned explicitly. A positive cash flow company can acquire another company that carries forward tax losses to reduce its own burden of taxes.
To Achieve Synergy:
A major reason that drives a M&A is achieving synergy. Synergy is merely value creation. If two companies merge to create greater efficiency together, they have a synergy merger. This merger generates combined cost savings and combined reduced risks.
To Increase Market Share:
A company pursues a merger or acquisition to increase its revenue and profitability. This enhances the share price which benefits shareholders and increases the company’s market share. A larger company can negotiate better and exert more influence in its industry.
To Diversify:
M&As can help companies gain access to new markets – new customers, distribution channels, and new geographic markets as well. It also reduces reliance on a single product and diversifies the product line. This achieves more resilience and fewer risks. The company also acquires trademarks and patents with the deal.
For Cross Selling:
When the acquirer accesses the existing customer base of the other business to offer its products or services, it is known as cross-selling. Also called ‘bundling,’ cross-selling is to combine offerings and offer a compelling proposition.
For instance, Starbucks acquired Teavana and now cross-sells both Coffee and Tea.
To Acquire New Tech Expertise:
With the ever-evolving tech advancements, if companies do not upgrade, they cannot survive. M&As will help businesses acquire new talent and gain access to technological expertise.
For example, in several deals in 2022, global oil companies invested heavily in renewable energy (solar-wind producers) to boost their “green” footprint.
Scaling in the Economy:
In comparison to a smaller firm, a larger company enjoys competitive advantages. By combining operations, a company can often reduce costs by eliminating duplicate resources and increasing efficiency, provided both companies have complementary resources. This also increases the profit margins.
THE BIGGEST BUSINESS ACQUISITIONS OF 2022:
Here is a list of the top ten business mergers and acquisitions of 2022:
1) Microsoft And Nuance
Industry: Technology
Microsoft acquired Nuance for $19.7 billion on April 1, 2022.
Founded in 1992, Nuance is one of the leading trailblazers of the Artificial Intelligence industry today. It was Nuance that built Apple’s Siri’s backend.
Microsoft and Nuance had been working together since 2019 on several health-tech projects. Nuance primarily serves industries like healthcare, financial services, retail and telecommunications. The prior history of working together might have been a good indicator of their productive fit and financial success.
2) Oracle And Cerner
Industry: Health Tech
Oracle acquired Cerner for $28.3 billion on June 7, 2022, through an all-cash tender. This is the biggest deal that Oracle has been a part of.
Cerner provides digital information systems to the healthcare industry. This synergy has streamlined a few of the objectives of the acquisition. Its includes building cloud software systems that deliver better healthcare to communities.
“Working with the forces combined, Oracle and Cerner can truly transform healthcare by enabling better decisions for patients, when medical professionals receive immediate information.”
– Larry Ellison, Chairman and Chief Technology Officer, Oracle
3) Elon Musk And Twitter. Inc
Industry: Social Media
Business mogul Elon Musk initiated the acquisition of Twitter by buying shares in January 2022. In April, he was the largest shareholder with a 9.1 percent stake of ownership. He then made an offer of $44 billion to buy the platform.
The deal was concluded on October 27, 2022, after which Musk found himself under fire for promptly firing a majority of senior stakeholders and the workforce. Industry analysts are unable to gauge his aspirations for the future with this decidedly eccentric purchase.
Furthermore, Tesla investors are worried that the billionaire might not be able to focus on all the three companies that he serves as CEO. After the Twitter acquisition, S&P 500 reported that Tesla is one of its worst performing stocks of the year. Will Musk save Tesla? The carmaker has continued to bleed value while investors hope for a miracle.
4) Adobe And Figma
Industry: Technology
Adobe acquired the web-first collaborative design platform, Figma for $20 billion in cash and stock on September 15 2022.
Figma assists developers in easily constructing graphics on screen and helps designers sketch prototypes faster.
“The rare opportunity to power the future by combining the capabilities of brainstorming and creativity to deliver splendid innovations to millions of people”
The word ‘Collaboration’ has been a purchase motive in multi-billion dollar deals. Adobe’s intention of this acquisition is to ‘Change the world through digital experiences’. Although Adobe’s stock price has fallen 33 percent after the acquisition, these complementary design firms have expanded the product line of Adobe.
5) Broadcom And VMWare
Industry: Information Technology
Broadcom acquired VMWare for $61 billion in cash and stock on May 26, 2022. Broadcom is notorious for its ‘acquire-and-ax’ software companies, and this acquisition did not go down well in the market resulting in a 20 percent fall in Broadcom stocks.
VMWare.Inc is a virtualization tech company that uses cloud computing. It was the first company to succeed in virtualizing the x86 architecture.
Broadcom has since rebranded to operate as VMWare and incorporated the existing infrastructure and software security solutions in VMWare’s portfolio.
6) Orange And Grupo MásMóvil
Industry: Telecommunications
The valuation of this combined enterprise is $21.3 billion. Emerging as a new leader in the Spanish cellular telecom market, Orange and Grupo MásMóvil joined in a 50-50 venture on July 23, 2022, to have equal control rights and governance.
The goal is to build complementary business models to serve 1.5 million TV subscribers. The synergies from this acquisition have been estimated at €450 million per annum after a period of four years. This play of scale can benefit from the financial expertise of both companies to invest in 5G and fiber too.
7) AMD And Xilinx
Industry: Microprocessors
In this high-value M&A, AMD acquired Xilinx for $49 billion on February 14 2022. To become the largest chip deal, this merger aims to create the highest-performing adaptive computing leader with graphics and adaptive SoC (system-on-a-chip) products.
Xilinx is known for providing leading FPGAs and AI engines. With Xilinx’s software expertise, AMD can expect to deliver edge, cloud and intelligent devices to a $135 billion market.
8) Google And Mandiant
Industry: Cloud Security
Google acquired Mandiant for $5.4 billion in an all-cash transaction on September 12 2022. Mandiant would join Google Cloud but retain its identity.
Google’s move was to showcase its long-standing commitment to proactive cloud security. Mandiant Inc is a pioneer of dynamic threat intelligence and cyber defense. This acquisition would help both leaders to achieve enhanced end-to-end security operations and support customers across their on-premise environments and cloud.
9) Microsoft And Activision Blizzard
Industry: Gaming
In yet another successful consumer software prediction, Microsoft intended to land Activision Blizzard for $68.7 billion in cash on January 18, 2022.
Activision Blizzard is the largest player in the gaming industry.
This merger could award Microsoft globally renowned franchises such as Call Of Duty, Warcraft and Diablo. Microsoft bets that the future of gaming is on the cloud, not console. It would also make the multinational tech giant, the third-largest player behind Tencent and Sony.
This news did not go down well with industry experts who claim that Microsoft has a record of buying gaming content and withholding it from its rivals.
The FTC (Federal Trade Commission) has cited concerns and filed a lawsuit to block this takeover.
“We seek to block Microsoft from gaining control of an independent leader of gaming and using it to harm the fast-evolving gaming market”
– Holly Vedova, Director, FTC
Microsoft intends to battle it out by building a case around calling the acquisition a vertical merger.
Microsoft’s president, Brad Smith countered that FTC’s case hinges on a worry that popular games like ‘Call Of Duty’ will be made exclusive to Microsoft’s Xbox system, and make PlayStation gamers lose out on it.
Smith said that rival Sony’s exclusive games are 4 times more than that of Microsoft.
10) Vista Equity Partners And Citrix
Industry: Information Technology
On January 31, 2022, Vista Equity Partners and Evergreen Coast Capital Corporation entered into an acquisition agreement with Citrix Systems for an all-cash transaction of $16.5 billion.
Citrix is a workspace gateway that helps workforces access desktops through a secure remote server by duplicating the layout. It also provides software as a service, networking and cloud computing technologies.
Citrix’s share prices had fallen by nearly 50% in the past two years. Vista Equity’s decision suggests that they are focused on tech acquisitions like this enterprise software. The synergy would result in efficient restructuring and value addition,
With 100 million users in 100 countries, this acquisition makes it one of the world’s largest software providers that serve 98 percent of the Fortune 500.
THE VERDICT FOR 2023:
The market is more impatient than ever. The ever-changing financial fundamentals, inflation and rising interest rates are driving economic uncertainty. Even with the unsettled economy, Mergers and Acquisitions can drive return on capital.
Businesses with a strategic conviction will be able to find good deals. Leaders should seek out deals that can revamp their company.
There is a high probability of good opportunities for savvy C-Suite dealmakers in 2023. The global economy is expected to flourish with increased public & private funding.
