Christopher Kummer is the founder of Kummer & Company and professor and advisor on strategy and mergers and acquisitions (M&A).
Mr. Kummer is a visiting professor at Grenoble Ecole de Management, France, and an Adjunct Professor at Webster University in Vienna, Austria. He also is the President of the Institute of Mergers, Acquisitions and Alliances (IMAA), a non-profit academic think tank on M&A.
1. Considering the financial situation in Europe today, is the environment favorable for Mergers and Acquisitions?
For companies and investors that currently would like to do acquisitions there are a lot opportunities. Competition for companies and valuations are much lower than at other times. Also a lot of opportunities are available for those that are experienced and risk takers to turnaround less profitable or lossmaking companies. The only prerequisite is that acquirers need to have a significant proportion of the financial funds needed to finance these transactions at their disposal, because financing terms and conditions have become less favorable. Supply of target companies however is a little bit lower at the moment than usual. Owners that are not under immediate pressure to sell seem to be a bit more hesitating these days.
2. Are there any particular issues need to be considered when undertaking a merger or acquisition in an emerging market?
First of all, doing acquisitions in emerging markets is only for those that really are happy to take on the risks and challenges that come with it. Second, valuations for companies in emerging markets look a lot different to those of companies in mature economies. These valuations include a high portion of growth which is very difficult to forecast. Therefore I would always suggest to model any purchasing prices rather with additional payments when specific business targets have been met. Alternatively a step wise acquisition by initially buying only a part of the company and having an option in place to buy the remaining share could be a solution too. Third, documentation for target companies in emerging markets might not necessarily be official accounting and tax documents and many companies do not have a proper ERP system already in place. So figuring out or having disclosed the a fair & true view of data remains a key task. Fourth, I would never get involved in emerging markets without having the right management capacity already in the company. So before making an acquisition, the company needs to invest in the right person / people.
3. Do you have a recent example of a company that has adopted a successful M&A strategy?
One company that had adopted a growth strategy very successfully was Actavis. Being based in Iceland, Actavis managed to become the global number 4 player in the generics industry. They had very strict rules not to pay too much for targets and also a very straight forward integration approach which apparently worked quite well. Due to the financial crises in Iceland and also a continued consolidation trend in the generics industry however Actavis remained not independent and has been acquired by Teva – the global number 1 in generics.
4. Lastly, any advise for future business developers?
Mergers & Acquisitions can be an excellent tool to quickly realize important strategic steps of a company. However, first of all the company and its business developers should first have figured out how that strategy looks before stumbling into any M&A and also carefully weigh alternatives and options to M&A. Second, if not enough internal resources and experience exist, depending on the situation and transaction, business developers should arrange and manage a clever combination of an internal team added with external experts and advisors. Sometimes advice is worth paying for and much cheaper than realizing a bad acquisition which can be much more costly.
Interview by Eivind Otnes