The Global Financial Crisis and M&A

Abstract

The global financial crisis is changing the landscape for mergers and acquisitions (M&A) and identifying new M&A targets that indicate a shift with significant impact to our global business practices. Even more now than ever before, companies are implementing strategies that include gaining access to new geographies. They are responding to the crisis by focusing on growth outside their home country regions, expanding their geographic diversification and investment in secondary markets. Previous M&A activity was focused in the triad of US, Europe and Japan, the world's largest consumer markets. However, as the triad's share of the global consumer market declines companies are looking to new consumer markets that are expanding and open for opportunity. Our research examines the increased complexity and challenges that cross-border acquisitions need to address in their effort to succeed globally in an environment of instability fueled by ongoing financial turmoil. New development in formulating innovative deal structures and defining creative terms is apparent. Looking deeper into the supply chain to identify acquisition targets is becoming attractive particularly in cross-border M&A to diversify risk, and maximize control, efficiencies and productivity. Increasing the influence of shareholders, maximizing legal arrangements and giving consideration to international political implications are all finding their way into the acquirer's deal structure. M&A advancement in growth markets augments global business innovation and vitality in challenging economic conditions. Cross-border M&A is contributing to the change into our macro global political, social and economic integration.

Why Do Over-Deviated Firms from Target Leverage Undertake Foreign Acquisitions?

“…The failure of well-known financial institutions during the global financial crisis of 2007-2009 resulted in a freeze in global credit markets. This negative shock on the external supply of finance caused a sharp reduction in firms' cash holdings (Grave, Vardiabasis, & Yavas, 2012). Using survey data from 1,050 chief financial officers (CFOs) in the US, Europe and Asia, Campello, Graham, and Harvey (2010) found that around 86 per cent of constrained firms forwent and cancelled valuable investments during the global financial crisis.…”

Refocusing on the Success Enabling Factors in Mergers and Acquisitions

“…During a recession, the market is depressed, and stock prices are significantly lower presenting opportunities for acquirers to make cheap acquisitions during a recession. For instance, during the economic downturn in 2008, Roche Holding Switzerland acquired Genentech Inc for $43.7bn, and Bank of America took over Merrill Lynch for $48.8bn in what analysts consider as opportunistic acquisitions (Grave, Vardiabasis & Yavas, 2012). This also involves taking advantage of prevailing market situations in foreign economies to make cross-border acquisitions for organizations in pursuit of diversification.…”

Diversification strategies and equity market performances

“…Previous investment activity in the 20th century was mainly focused in the triad of US, Europe, and Japan, the world's largest consumer markets. However, as the triad's share of the global consumer market declines and diversification opportunities diminish, companies are looking deeper into the supply chain to identify investment opportunities and acquisition targets in other parts of the world to diversify risk, and maximize control, efficiencies, and productivity (Grave et al, 2012).…”