The first half of 2018 was a record for dealmaking, with $2.5 trillion worth of mergers and acquisitions.
Yet the market remains skeptical, and not all deals have been greeted with approval from investors.
Anu Aiyengar, the head of M&A in North America for JPMorgan Chase, told Business Insider that messaging around mergers and analyzing a company’s investor base has grown increasingly important.
Companies used to tightly guard their M&A strategy, but times have changed, she said.
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In a recent interview, Aiyengar discussed how M&A strategy has changed, why the bank is spending more time coaching clients on messaging, and why it gives them an edge in the world of dealmaking.
Halfway through the year, 2018 has been the hottest for mergers and acquisitions on record.
Global economic expansion, a friendlier corporate tax regime, cheap lending, boardroom confidence, and a sense of urgency thanks to the looming threat of industry-upending tech giants has led to $2.5 trillion in announced deals worldwide through the first two quarters, according to Thomson Reuters data. That’s a 61% increase from 2017.
But despite the frothy environment, companies aren’t getting a free pass to spend frivolously. The market continues to greet deals with scrutiny, and M&A that seems too expensive or doesn’t make enough strategic sense has flopped when it crosses the finish line.
Take General Mills, for instance, which received a cool welcome from analysts after announcing in February it had bought the high-growth pet food company Blue Buffalo for $8 billion — about 25 times EBITDA. The cereal maker’s stock slid more than 7.5% in the ensuing three days of trading.
More recently, asset management giant State Street saw its shares plunge as much as 9%, the most in nearly three years , after announcing it would buy financial data firm Charles River Development for $2.6 billion .
“The market is much more discerning in terms of evaluating M&A deals — not every deal gets a positive reaction,” Anu Aiyengar, the head of M&A in North America for JPMorgan Chase, told Business Insider in a recent interview at the bank’s midtown headquarters. “If investors like a deal, the acquirers’ stock goes up; if investors don’t like the deal terms or don’t understand the rationale, the reaction is negative.”
JPMorgan has been one of the most active M&A advisers in the first half, orchestrating 176 deals worth $554 billion, good enough for third place behind Morgan Stanley and Goldman Sachs, according to Thomson Reuters.
In Aiyengar’s territory of North America, the bank worked on nine of the top 20 announced M&A transactions in the region.
And increasingly, under her watch, the firm finds itself spending considerable time advising its clients on messaging and cultivating their investors long before a deal is in the offing, so as to avoid a sloppy landing once a hard-won transaction is finally announced to the world.
“The importance of corporate communications is at a totally different level today,” Aiyengar said. It’s also grown more complicated and high stakes with activist investors constantly prowling and even passive managers, like BlackRock , becoming more likely to throw their weight around and less likely to rubber-stamp boardroom strategy.
Analyzing the investor base and developing thoughtful, well-communicated acquisition strategy is an obvious tactic in Aiyengar’s mind, yet she says it’s not common practice among Wall Street investment banks, which may be because historically companies have kept the secret sauce of their M&A strategy tightly guarded.
But times have changed, and that approach no longer adds up, she said.
Aiyengar recently discussed how M&A strategy has changed, why the bank is spending more time coaching clients on messaging, and why it gives them an edge in the world of dealmaking.
Date: August 6, 2018