Combination Strategies Across Borders - Keys to Growth in a Multi-Polar World
The first session of the morning was a keynote speech from Ben Gomes-Casseres, a professor of International Business and the Director of the MBA Program at Brandeis International Business School. Interestingly, Mr. Gomes-Casseres was suffering from back problems, and so instead of presenting to us in person, he presented via Skype. It was a great use of technology!
Gomes-Casseres began by introducing himself, saying that he's well-placed in today's world, because he grew up in a multicultural, multipolar world with many different influences.
The main theme of his talk was that we're seeing the changing borders of countries as countries' roles in the world are changing. All countries have their own local players for companies - either as competitors, potential merger partners, or others, and it's the attorneys' role to help create the environment where these legal structures can flourish. Gomes-Casseres clarified that the attorneys don't just help their clients to avoid legal pitfalls when doing cross-border work; in order to help them succeed, they need to help them integrate locally. For more information, take a look at the paper that he co-authored, which he shared with us.
Cross-Border Acquisitions: Is the US Losing in the Market for Corporate Control?
The next session was with Ken Smith, the Associate Dean of Executive Programs and Associate Professor of the Department of Business at the University of Guelph. He had undertaken research to answer four questions:
- Are Canadian and US companies competitive in M&A internationally?
- What is the impact of increased international M&A activity?
- Should Canada and the US be more ambitious outside of North America?
- Are corporations playing on a level playing field?
This first question really has the subtext of asking - are we losing control? Smith says the answer is yes. Global industry restructuring is being led by Europe - he showed a slide on the change of ownership control:
Following this, we looked at a slide that showed that US deal flow is negative when deal volumes are highest. This is true in Canada as well:
Is the exchange rate the cause of this? Smith says no:
Missed Opportunity or Risky Business?
Smith looked at this question through Canadian data, saying that it's easier to see looking at a smaller economy. Canada is losing the most in their historic strengths, like natural resources. However, the financial industry remains strong, because it's a protected industry in Canada:
In the US, we're losing in almost all sectors - the biggest is consumer non-cyclicals.
To think about the economic impact, you have to get past an individual transaction. This is about balance, and the implications of extreme imbalance - there are three layers.
- At the company level, you'll see the loss of headquarter jobs, and the professional services firms that support headquarters (like law firms).
- At the industry level, you'll see a loss of consolidators and a weakening of industry clusters.
- At the community level, you'll see a loss of community leaders and donations, and ultimately a reduced attractiveness as a financial center.
So, looking ahead, should we be more ambitious?
"...could have been a contender"
Smith said we are likely to go into another M&A boom sooner rather than later, and the focus will be mostly international. 50% of deals are now cross-border - that's a number that's too large to ignore. Also, this speaks to how big your company needs to be to be competitive, and what kind of global scope you need - are you playing in the game?
Smith said that buyers are creating value, and showed a slide of average deal returns in the EU:
However, US deal performance is historically weak:
Smith finished up in this section saying that consolidation deals pay off the least well of any kinds of transactions, across the board.
Then we moved on to his key messages:
- CEOs need to improve deal performance. How can they do this?
- Focus on deal logic: identify path to long-term strategic value.
- Align organization and culture: integrate structure, process, systems and culture.
- Manage to completion: accelerate transition and act on strategic potential.
The lesson here is that CEOs need to learn some new skills to be effective in cross-border deals.
- Policy makers to ensure a level playing field:
- Drive market opening, but don't take a long lead.
- Ensure domestic regulation (competition policy, securities law, etc) is designed in international context.
- Support global growth.
- Boards need to take the long view:
- Easy to sell for a premium.
- Those leading global industry restructuring earning many time such one-time sale premiums.
- In either case:
- Ensure a global perspective in planning.
- Know the value of your plan.
- Be strategic (vs reactive) in buy or sell decisions.
Competitiveness is going to demand greater scale and scope, and so far, we're not doing that well.
Then it was time for some audience questions. An audience member asked Smith to comment on what has caused US troubles. He said that there has been insensitivity to culture (something I've actually seen happen). Additionally, domestic transactions have been predominantly about cost-cutting and consolidation, which makes it hard to create value.
An Israeli lawyer in the audience commented that anecdotally, he's seen a lot of technology deals by US companies with Israeli companies. He questioned whether the research's results were skewed because they cut off less costly deals. The speaker said he did look at some lower cut-offs in the US and Canada, and while he didn't see that the trends would be different in the US and Canada, they might be in other markets.
Thanks to ALM for a fascinating event!