According to a report by Bain & Co., companies are increasingly using acquisitions to acquire new technology skills to drive sales growth.
Mergers and acquisitions often fall into two categories. In the first, which Bain calls “Scope Deals”, companies look for new functions, access to new markets or other complementary services. In the second case, which the consulting firm calls “scale deals”, companies want to increase their market share in a certain industry.
Subscribe to Newsletter
The Morning Ledger provides daily news and corporate finance insights from the CFO Journal team.
According to the Boston-based consulting firm, 58 percent of global transactions with a transaction value of more than $ 1 billion were considered scope deals. The number corresponds to an increase of seven percentage points compared to 2018, when the scope deals outnumbered the scale deals for the first time since at least 2015.
The value of corporate deals announced worldwide reached $ 3.4 trillion, the same as the 2018 total. Some companies have been cautious amid uncertainty over trade tensions between the US and China and the UK’s planned exit from the European Union.
Global payments Inc.’s
The $ 21.5 billion merger with Total System Services Inc. was one of several financial technology transactions in 2019 where card payment processing companies entered into merchant-side functionality agreements. The deal gave Global Payments more insight into digital payments trends through access to the issuer and consumer facing areas of Total System Services.
“These are two companies that Global Payments did not have a history of,” said Cameron Bready, president and chief operating officer of Global Payments, who served as chief financial officer prior to the merger.
Other fintech transactions – including Fiserv Inc.’s
Acquisition of First Data Corp. and Fidelity National Information Services, valued at $ 22 billion Inc.’s
Acquisition of Worldpay Inc. valued at $ 35 billion – creating two-way platforms for merchants and financial institutions with the aim of monetizing both goals, said Moshe Katri, analyst at Wedbush Securities Inc.
The scale business declined in the past year, also because companies in strongly consolidated industries encountered regulatory obstacles.
Governments have been scrutinizing the business for national security reasons, Les Baird, head of Bain’s global M&A and corporate finance practices and one of the report’s authors, said in an interview.
74 percent of the businesses in the healthcare industry were scope businesses, which, according to Bain, was the highest proportion of all industries examined. Some of these companies wanted to acquire therapeutic skills, according to the report. Vertex Pharmaceuticals Inc.,
A Boston-based biopharmaceutical company attempted to expand its gene editing services by acquiring Exonics Therapeutics Inc. and acquiring the intellectual property rights of Crispr Therapeutics AG.
Sometimes companies need to buy more than one company in skill acquisition. “Editing genes is very complicated – not only do you have to acquire a company, you also have to acquire the IP you are interested in,” said Jeffrey Leiden, Vertex chief executive, in an interview.
Finance managers are expected to continue to benefit from low interest rates and rising stock prices over the coming year to raise capital for acquisitions.
Favorable capital conditions should keep the volume of scope deals stable or grow in the short term, said Baird. Scale deals tend to result in more immediate cost savings, which become particularly attractive in a tight economic environment, he said.
“If we saw a deep recession, the mix could shift back a bit towards scale deals,” said Baird. “But I think this underlying trend of buying opportunities will continue.”
Write to Mark Maurer at firstname.lastname@example.org
Copyright © 2020 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8