Bali part of Indonesia shock
We are grateful to Elizabeth Pisani, epidemiologist, writer and adventurer, for the letter below which first appeared in The Telegraph before ending up on her website, Indonesia etc.
This also happens to be the title of her forthcoming book next month which is an account of her journey through Indonesia and an assessment, as she says, of its "enchanting and sometimes maddening foibles." The letter below is something of a surprise since it involves HSBC which used to style itself as the "The world's local bank."
Sir - I am currently on holiday in Bali. On Tuesday I had my HSBC bank debit card stopped and received an urgent voicemail asking me to ring the HSBC fraud office. I did this, and was informed: "You told us that you were going to Bali, so when a transaction was attempted in Indonesia, we suspected fraud and stopped the card."
Professor R G Faulkner, Loughborough, Leicestershire
M&A activity is booming but does it destroy value?
Mergers and acquisition (M&A) activity has got off to a cracking start this year with deals for the first four months totalling US$1.1 trillion, which is only the third time this volume of activity has been achieved since 1980 when Thomson Reuters started keeping records. We are told this is because companies are sitting on large piles of cash and valuations are relatively unstretched. The volume of activity is perhaps somewhat surprising when you consider that M&A is traditionally viewed as more likely to destroy shareholder value rather than to enhance it.
However, a recent study by Accenture that looked at 500 global deals between 2002-2009 found that 58 per cent of M&As did create value for shareholders in terms of total shareholder returns, which includes total returns from capital appreciation (stock price movement) and dividend yield available to shareholders over a 24-month period. A number of the earlier studies simply considered the share price movements within a few days before and after the deal.
The study also notes that the top-quartile performers - and often even median ones - could in fact create substantial amounts of shareholder value at any point in the economic cycle, in any industry and even in any region.
At 51 per cent, there were fewer M&As in Asia that added value, versus the global average, and the number for the mainland was lower still at 46 per cent.
While China's slowing growth had led to a decline in inbound M&A activity from European and US acquirers, China's domestic market had reached a "turning point" according to Mirko Dier who leads Accenture's global M&A practice. "For the past 10-20 years Chinese companies have experienced nothing but growth. Now I think that with overcapacity in the market this will change and the driver for M&A will be consolidation - taking capacity out of the market," he said. Another aspect of this changing climate is that companies are under much greater pressure to be competitive and efficient.
"I don't think they have experienced this before. Previously it was just expansion and being in the game." But he feels mainland companies will find the new environment challenging as they don't have real M&A capacity. What tends to happen is there is a team that focuses on the transaction, the financing and valuation. Once completed it is handed over to those who run the business operations, who Dier says may not understand the rational for the acquisition and probably haven't been part of the discussions about what the firm wants out of the acquisition. The danger is that the firm is given a CEO and plugged into the organisation and operates as a standalone unit.
Another difficulty mainland companies face is, although they may be on the look out for acquisitions, their own companies are not set up for integration. "In the coming wave of consolidations companies need to prepare for doing not just one mega-deal but for doing, say, four or five smaller deals," he said. "They need to have a structure and processes that can cope with this so that they don't start every deal from scratch."
This means, for example, having shared services so that each business division doesn't have its own finance and human resources capability. "European and US companies have all learned this the hard way as well," Dier said.
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