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Etiqueta: m&a

  • 54% of Spanish companies will grow this year with M&A operations

    The second half of 2023 looks set to be very active in the M&A sector. According to the report «Perspectivas M&A en España 2023» conducted by KPMG in collaboration with the employers’ association CEOE, 54% of executives expect to boost the growth of their companies through M&A transactions in the coming months.

    After surveying 1,100 Spanish entrepreneurs, the study concludes that one in four executives expect to accelerate the growth of their business with an acquisition or alliance in 2023. This is a significant increase from 2022, when only 11% did so.

    In recent times we are already seeing large deals by international private equity funds. Some outstanding examples are the recent purchase of Amara NZero by the British fund Cinven, valued at 700 million euros, or the acquisition of Windar Renovables by Bridgepoint for 650 million euros. In the coming months, it is expected that many large companies will launch secondary businesses on the market, choosing to focus on their core business and resorting to this type of divestment to obtain liquidity.

    Objectives: diversify, generate synergies, creat new lines of business…

    In the current environment, joint ventures, alliances and acquisitions are seen by many companies as a good way to cope with uncertainties. The reasons for undertaking M&A according to business people are mainly the following:

    • Find a good market opportunity (50%).
    • Achieving geographical diversification (36%). In these cases, the preferred formula is the joint venture.
    • Enter new lines of business (35%).
    • Consolidate market share (34%).
    • Generate cost synergies (31%).
    • Increase customer base (29%).
    • Overcome the limited options currently offered by organic growth (26%).

    In short, alliances or joint ventures reduce risks and facilitate entry into new businesses, sharing synergies and also facilitating access to debt.

    What are the main difficulties in undertaking M&A transactions

    According to the entrepreneurs surveyed, these are the main difficulties they face when undertaking an M&A transaction:

    • Economic uncertainty (72%).
    • Finding good investment opportunities (41%).
    • High asset prices (36%).
    • Complexity of the transaction (30%).
    • Difficulty in obtaining financing (27%).

    Securing funding, one of the main challenges

    This last challenge, that of financing, deserves a special comment. After years of very low rates, it is now much more expensive to finance. For this reason, transactions where the strategic side outweighs the financial side are now much more likely to be completed successfully. However, in the second half of the year, divestments to raise liquidity are expected to increase cash and reduce debt.

    According to the KPMG and CEOE study, the main sources of financing to support mergers and acquisitions are domestic banking (47%), private equity (17%), foreign banking (16%), capital markets (12%) and alternative sources of financing (8%).

    As we can see, the responses recorded suggest that banks in Spain are still willing to finance transactions. However, it is worth highlighting the growing role played by private equity funds, which now account for almost 25% of M&A investment in Spain. We are seeing this in large deals such as Pronovias and Abengoa, and the forecast is for them to play an increasingly important role in the market.

  • Strategic reasons for a takeover or reverse merger

    To talk about reverse mergers, we have to start at the beginning. There are two ways in which two companies can be merged: takeover and merger:

    • In a takeover process one of the two companies (the absorbed company) disappears and is fully integrated into the other (the absorbing company).
    • In a merger process two companies merge to create a new company. As a result, the two initial companies cease to exist as independent companies.

    The big fish doesn’t always eat the little fish

    In corporate practice, as in the natural world, it is most common for the big fish to metaphorically eat the little fish. Thus, in both cases it is usually the company with the larger assets that ends up controlling the resulting company. The company with smaller assets does not necessarily lose its legal identity, but becomes subordinate. However, there are exceptions.

    What is a takover or reverse merger?

    A reverse merger is a merger of two companies in which the smaller company takes control of the new company. It is rare, but sometimes it is the larger company that disappears or moves to a subsidiary position.

    Such reverse mergers are neutral in accounting terms, irrespective of who acquires whom and irrespective of the name, registered office or majority shareholding of the resulting company. Nor can they have any tax implications. It would be tax evasion if as a result of a reverse merger the resulting company were to pay less tax than if it had carried out a conventional merger.

    Strategic reasons for opting for a reverse takeover

    In practice, there are many reasons why takeovers and acquisitions are sometimes carried out in a manner contrary to what is usually done:

    • Legality and taxation. In cases where the smaller company has its registered office in a location where there is a legal or fiscal framework that is more beneficial to the activity of the company resulting from the operation.
    • Geography. When the smaller company is closer to the centres of power, to customers or suppliers, to logistical centres…
    • Competitiveness. In sectors undergoing major change, it may be that the smaller company nevertheless has more commercial potential in the medium to long term.
    • Reputation. Sometimes the company with less equity has a better brand image and offers more potential from a marketing point of view.

    Are transactions between subsidiaries and parents reverse mergers or improper mergers?

    There is much confusion as to the true nature of reverse mergers and how they differ from so-called improper mergers. For example, stricto sensu, we cannot speak of a reverse merger when it involves operations in which a subsidiary takes control of its parent group. A practical example of this would be the recent merger of Ferrovial’s parent company with its subsidiary Ferrovial International SE.

    These types of vertical operations fit better under the definition of improper mergers. This is also a problematic denomination, because although the law allows for such operations, they are called «improper» because they are not really mergers.

    It should be borne in mind that parent and subsidiary are already from the outset companies of the same group and share a common shareholding. Thus, when a subsidiary takes control of the parent company, it is more an internal reorganisation than a merger or takeover per se.

    At Confianz we are specialists in M&A. Contact us and we will advise you to make your transaction a success.

  • Brussels sends a first warning to Spain for its delay in transposing the mobility directive

    On 27 March, the European Commission sent letters of formal notice to several EU member states for their delays in transposing various directives. Spain received three of these letters. One of them, the one we are going to deal with in this article, concerns the 2019 mobility directive on cross-border transformations, mergers and divisions. This is the first step in a process that could end with the European Commission issuing proceedings and fining Spain for its delay.

    Objectives of the 2019 mobility directive

    The 2019 mobility directive on cross-border transformations, mergers and divisions (Directive (EU) 2019/2121 of the European Parliament and of the Council of 27 November 2019) amends an earlier one from 2017. In the context of an increasing internationalisation of economic operators, its objectives are:

    • Streamlining and making more transparent cross-border business mergers within Europe that give rise to new transnational European companies.
    • Provide more information and assurances to employees and shareholders.
    • To facilitate and simplify legal work when analysing the structural modification operations of commercial companies.
    • Promote mobility within the EU in order to improve the functioning of the internal market.

    Whereas Directive (EU) 2017/1132 contained only rules on domestic divisions of public limited liability companies, the new Directive (EU) 2019/2121 extends cross-border regulation also to partial and complete transformations and divisions involving the formation of new companies.

    In Spain, the bill still has to pass through Congress and the Senate

    The deadline for transposing this directive into Spanish law expired on 31 January. But Spain is running late. A draft bill to reform the law on structural modifications of commercial companies was approved on 14 February, but it still has to go through the entire parliamentary process in Congress and the Senate. Realistically, it is highly unlikely to achieve this in an election year such as 2023. In July and August there will be no sessions and the Cortes will be dissolved in October at the latest.

    Following the mobility directive that it transposes, the draft bill seeks to establish a harmonised legal framework for cross-border company mergers in Europe. Its purpose is to regulate structural modifications, both internal and cross-border, of commercial companies consisting of transformation, merger, demerger and global transfer of assets and liabilities.

    Widespread dealy in EU member states 

    Spain was not the only country to be notified for the delay in transposing this directive. Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, France, Greece, Ireland, Latvia, Lithuania, Luxembourg, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia and Slovenia have also received this first warning.

    After this first letter of formal notice, if Spain continues to delay in transposing the mobility directive, the European Commission may initiate Community proceedings. In such cases, the country concerned usually has two months from this point to communicate its position. If Brussels considers that the directive has not been transposed into national law, then the case is initiated.

    The state concerned then has a further two months to report on the transposition measures. If it persists in non-compliance, the Commission reserves the right to refer the matter to the Court of Justice of the European Union to impose sanctions. In Spain’s case, this would not be the first time it has gone to court over a delay in transposing a European directive. For example, last year we already saw it for the delay in the transposition of the audiovisual directive.

  • Anti-embarrassment or anti-shaming clause in M&A transactions

    In recent years, the inclusion of a so-called anti-shame or anti-embarrassment clause has become more and more common in company purchase and sale transactions. This allows the selling party to secure financial compensation in the event that the buyer resells the assets at a significantly higher price within a relatively short period of time.

    The anti-embarrassment clause is often found in divestment contracts of private equity companies. The aim is literally to prevent the seller from being embarrassed by the agreed price. Because calculating the price in M&A can be very complicated and thus minimises the risks of both financial and reputational damage.

    The example of Telefónica

    When Telefónica sold its mobile tower division in Europe and Latin America to American Tower for €7.7 billion it included an anti-shaming clause in the contract. This ensured that it would receive financial compensation in the event that American Tower sold all or part of the assets, merged with another company, agreed to share the infrastructure with a third party…

    Why include an anti-embarrassment clause in the sales contract?

    Why include an anti-embarrassment clause in the sales contract?

    Also known as a best-fortune clause, this is a mechanism that gives the seller peace of mind that the agreed price is not far below the market. Because sometimes it is natural to have doubts about this and even suspect that the buyer has already agreed to a subsequent resale at a much higher price.

    The anti-embarrassment clause is in fact an agreement in the contract according to which the sale price will be adjusted upwards if the buyer resells the shares at a higher price. In addition to sparing the seller the embarrassment of having sold below the market price, this clause serves to make the seller a participant in the capital gain made by the buyer.

    What an anti-shame clause should include

    There are four key issues to specify in any anti-shaming or anti-embarrassment clause:

    • The period of time during which the seller is entitled to upward price adjustment. This is usually not too long and is limited to a period of between one and five years.
    • The percentage increase in price that will give rise to the right to upward adjustment. For example, if the shares are resold within the period provided for in the first bullet point at a price 15% higher than the purchase price.
    • The number of units whose resale will trigger the realignment. It may be expressed as a specific number or as a percentage of the total.
    • The price adjustment system to be applied. One possibility is that the original selling party is entitled as compensation to a percentage of the price increase obtained from the resale. This is usually around 50%. It is also necessary to foresee the way in which this would be effective.
    • Some mechanism to prevent possible breaches of the clause by the buyer. For example, specific penalties in the event of concealing the sale, simulating a lower price than the real one, or even agreeing a sale to be executed after the end of the period of application of the anti-embarrassment clause. Another possibility is to control or prevent the distribution of dividends or reserves during the agreed period.

    If your company is going to negotiate the M&A transaction, Confianz can help you negotiate an anti-shaming clause to ensure you get the best price for the sale.

  • Distressed M&A deals: mergers and acquisitions of distressed companies

    The increase in distressed transactions is a growing trend in the field of mergers and acquisitions in Spain. Political and economic uncertainty is giving rise to an increasing number of distressed M&A transactions.

    On the one hand, there is liquidity in the market and investors with an appetite for risk, such as the Special Opportunities divisions of funds and investment entities. On the other hand, there are plenty of opportunities for companies with proven reliability but which are in financial trouble due to the global economic situation of the last few years. These are companies that are not financially viable but are economically viable. In other words, their real problem is not operational but stems from excessive indebtedness.

    What are distressed operations

    In distressed transactions, the selling company is experiencing financial difficulties and its shareholders are looking for corporate transactions that provide them with liquidity and/or viability alternatives to maintain part of the business and meet their financial liabilities. For this reason, these companies or some of their production units or business branches are now available at lower prices.

    On the other hand, the buyer has sufficient financial capacity to afford the transaction and is looking for medium to long term profitability. In the case of Spain, these buyers tend to be local and international investment funds.

    Distressed M&A transactions are usually bilateral, with no competitive sales process.

    Fast procurement, earn-out and anti-embarrasment clauses

    Distressed transactions are usually quick, mainly because the seller or the target company has a cash flow urgency that does not allow them to extend the deadlines. This speeds up the whole process, including due diligence, which entails a certain added risk for the buyer but also facilitates downward negotiation.

    In terms of pricing, the price is usually linked in part to the company’s future performance. This is known as an earn-out clause. Anti-embarrassment or «anti-shame» clauses are also common, whereby the seller ensures a price increase if the company is restored to health in the short term and the buyer sells his stake at a higher price.

    Payment is usually deferred at least partially.

    When is it best to undertake a distressed transaction: before or during the insolvency proceedings?

    In most of these types of transactions, the strategic decision of when is the best time to carry out the transaction: in a pre-insolvency or insolvency situation? There is no single answer either from the point of view of the target company or from the point of view of the acquirer.

    • In a pre-insolvency scenario the acquiring party has to assume certain termination risks.
    • In an insolvency scenario, it may seem that the seller has less room for negotiation, but the insolvency administrator and/or the commercial court will put pressure on the seller to obtain a reasonable exit for certain assets in order to provide liquidity to the insolvent company.

    Advantages of acquiring a distressed company

    Investment funds are attracted to distressed deals because the price is often much lower. But this is not the only reason. This type of M&A is also a way to gain risk-minimised access to an interesting sector or geographic area.

    Difficulties of distressed M&A 

    The main difficulty to be faced when undertaking such a transaction is that it involves not only the buyer and the seller, but also the interests of the sold company’s creditors. This entails the need to negotiate and execute the sale and purchase and the debt restructuring in parallel.

  • A wave of mergers in the insurance sector is on the horizon

    High inflation is driving up operating costs and drastically reducing the margins of insurers in Spain. This is particularly true for those specialising in motor insurance. The insurance sector has shown great resilience during the last crises, but in recent months it is struggling to overcome the increase in the number of claims, supply problems and rising repair costs.

    For this reason, M&A operations in the insurance sector are expected to multiply in the coming months. The first to come to the market is the Spanish subsidiary of the American group Liberty Mutual, a transaction that could move around 1.4 billion euros.

    Price hikes and job cuts in insurance companies

    Uncertainty is widespread. To cope with the difficulties, insurers are preparing a generalised increase in the price of policies, and three leading companies have already implemented or announced workforce restructuring to improve efficiency and profitability. Between 2021 and 2022 Mapfre took early retirement for almost 600 employees. At the end of last year, Catalana Occidente initiated a process of voluntary departures for up to 550 workers. For its part, France’s Axa has just announced its intention to carry out an ERE in its Spanish subsidiary.

    Possible takeover bid for Línea Directa 

    The insurance industry is highly fragmented. There are some 200 insurers in Spain, and policy increases and staff reductions will not be enough for all of them. Some will have to look for new partners.

    The aforementioned case of Liberty Seguros may soon be joined by one of the benchmark companies in car insurance: Línea Directa. After its flotation on the stock exchange in April 2021, the company’s shares have lost more than 35% of their value. This continued decline has triggered rumours that investment funds and other insurers may be preparing a takeover bid.

    To protect itself against the possibility of a hostile takeover bid, in recent weeks Línea Directa has attracted two new major shareholders to its capital structure. They are the management company Candriam, owned by the insurance company The New York Life, and the owners of the pharmaceutical company Rovi. Candriam has taken 3% of the capital, while the López-Belmonte family has taken 4.32%.

    A global trend worldwide

    In Spain, the latest major acquisition in the insurance sector was by Mutua Madrileña, which acquired 8% of El Corte Inglés for EUR 1.105 billion at the end of 2021, thus becoming its exclusive insurance provider.

    Internationally, insurance mergers and acquisitions set an all-time record last year. A recent report by global law firm Clyde & Co puts the number of deals registered in 2022 worldwide at 449. This is 31 more than in 2021. The Americas remained the most active region in 2022, with 236 mergers and acquisitions. Europe saw 127 transactions; Asia-Pacific, 60; and the Middle East and Africa, 24.

    There were 19 large deals worth more than USD 1 billion, and the number of mega-deals is expected to grow among large companies in the insurance sector in 2023. Because mergers and acquisitions are the best way to grow fast.

  • European Commission to scrutinise foreign subsidies in M&A deals

    As of 12 October, a merger control and foreign direct investment analysis will not be sufficient for M&A transactions. An analysis will also have to be carried out as to whether the transaction must also be subject to European Commission approval under the new foreign subsidy rules. This will inevitably lead to longer lead times and higher transaction costs.

    We tell you about it in detail.

    New regulation on foreign subsidies distorting the internal market

    On 23 December last, Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies that distort the internal market was published in the Official Journal of the European Union. Known by its acronym FSR (Foreign Subsidies Regulation), its content is inspired by European regulations on state aid and merger control.

    The new regulation provides that any foreign subsidy to European companies may be subject to investigation by the European Commission. The Commission will have wide-ranging powers to carry out information requests, inspections and market investigations in specific sectors. For this reason, all companies receiving any such subsidies will have to collect information both for the five years prior to 12 July 2023 and on a recurring basis in the future.

    How the FSR affects mergers and acquisitions

    In this way, the EU wants to avoid distortions in the internal market and in the level playing field. This is particularly the case if these subsidies are subsequently used to finance M&A transactions in whole or in part.

    The FSR has a direct impact on M&A transactions for companies that have received foreign subsidies in the three years prior to 12 July 2023 and beyond.

    As of 12 October 2023, M&A transactions will be subject to the same merger control and FDI analysis as before. In addition, however, an analysis will have to be added as to whether the transaction must also be subject to the condition that the Commission authorises it under the foreign subsidies rules.

    Which operations are subject to notification

    • Those where one of the participating companies is established in the EU and generates a turnover of EUR 500 million or more in the EU.
    • Whether the following companies have obtained from third countries in the previous three financial years combined financial contributions of more than 50 million euros.

    Notification procedure

    For M&A contracts affected by the FSR, prior authorisation must be sought from the European Commission.

    This notification must be made by the parties involved:

    • In the case of a merger: jointly by the parties to the merger or acquisition of joint control.
    • In the case of an acquisition: the person or undertaking acquiring control of all or parts of one or more undertakings.

    The Commission has 25 working days from receipt of the complete notification to decide to initiate an in-depth investigation. It will do so if it sees indications of foreign subsidisation that distorts the internal market. This in-depth investigation can take up to 90 working days before the Commission takes a decision.

    The Commission can adopt three types of decisions:

    • With commitments, such as repayment of the subsidy, reduction of market presence, refraining from certain investments, etc.
    • No objections.
    • Prohibiting the concentration operation.

  • Secondary buyouts (SBOs) soar in Spain

    Secondary buyouts among private equity funds have skyrocketed in the last year in Spain. In other words, more and more Spanish private equity funds are leveraging on other international funds to sell their best assets.

    A secondary buyout (SBO) is an M&A transaction in which a private equity fund buys from another private equity fund its stake in a company previously acquired by the latter.

    Also known as secondary leveraged buyouts, these mega-buyouts between private equity funds last year moved more than €7 billion in Spain. Some of the main deals were Altadia, acquired by Carlyle from Lone Star for more than €1.9 billion; the telecoms company Adamo, acquired by Ardian from the Swedish fund manager EQT for more than €1 billion; and the slates company Cupa, acquired by Brookfield from Carlyle for €900 million.

    Why there are more and more secondary buyouts in Spain

    There are several reasons why large buyouts of Spanish companies are increasingly taking place between national and international private equity funds.

    • Historic levels of liquidity in private equity thanks to the capital raising processes of the last few years.
    • The firm commitment of international investors to Spain. Numerous foreign venture capital funds are landing in the Spanish market, many even opening local offices.
    • Increasing competition for quality assets has created a strong appetite in the market, providing owners with juicy capital gains. There are more buyers and sellers in the market and the gap between the terms demanded by different parties has narrowed.
    • Global uncertainty encourages investment in more established companies. Because, in theory, companies that have already had a private equity partner have higher quality standards and have experienced two or more stages of growth and internationalisation.

    Characteristics of secondary buyouts

    The speed 

    Secondary buyouts are M&A transactions that are often concluded particularly quickly. Several private equity funds and even other companies are often interested in these deals. For this reason, the acquiring party often faces strong pressure not only in terms of price, but also in terms of timing.

    The use of the manifestation and warranty insurance policy

    The selling private equity fund makes it a priority to ensure that it has no potential future liability in connection with the sale of the company. To achieve this clean exit, it usually obliges the buyer to take out a warranty and indemnity insurance (W&I) policy. In this way the buying fund is covered against unknown contingencies and the insurer covers the risk of non-compliance with the seller’s representations and warranties.

    Locked box pricing

    In secondary buyouts the price is usually fixed by the locked box system. In other words, the price is fixed on the basis of accounts closed prior to the signing of the purchase contract. From that date onwards, the economic risk/benefit of the business is transferred to the buyer. For his part, the seller assumes certain obligations during the interim period.

    Future prospects

    In markets such as France and the UK, secondary buyouts account for almost 30% of total M&A transactions. In Spain we are still far from this percentage, so we should think that secondary leveraged buyouts still have a long way to go in terms of growth in the coming years.

  • Real Estate mergers and acquisitions grow by 65% in Spain

    The real estate sector is the focus of most of the M&A transactions in the Spanish market. According to data from Transactional Track Record, between January and November 2022, real estate mergers and acquisitions worth €12.78 billion have been announced or closed, 65% more than in the same period last year. In total there have been 266 deals, 15% more than in 2021.

    40 OPERATIONS IN NOVEMBER ALONE

    January remains the most active month for transactions in the real estate sector, but November closed with some remarkable figures. Over the course of last month, a total of 40 transactions totalled an aggregate amount of 1,446.49 million euros.

    One of the most important was the incorporation of the new joint venture Wellder Senior Assets, born from the merger of Renta Corporación and APG.  The company was created with an initial capital of 125 million and a target leverage of 50%, which should allow for an investment in assets worth 250 million.

    A SECTOR ATTRACTING THE INTEREST OF FOREIGN INVESTORS

    Outside Spain, France and the United States are the main destinations for investments in the Spanish real estate sector. In total, so far this year there have been 23 operations in these countries. However, the one with the largest accumulated amount is Canada, with 1,268 million euros.

    In the other direction, the United Kingdom and the United States are the countries that invest most in Spanish brick, with 28 and 27 operations respectively. If we look at the amount invested, the main investor is Germany, with 1,144 million.

    THE PROPTECH BOOM: REAL ESTATE TECHNOLOGIES

    Spain is a world power in the real estate sector, and it is also showing a lot of muscle in the technological field. Last year it was already the second country globally that received the most investment in technology companies in the real estate business, the so-called proptechs. According to the study Proptech Global Trends 2021, prepared by ESCP Business School in collaboration with the Principality of Monaco, Spanish real estate startups attracted 856 million euros in 2021.

    This figure exceeds that of leading countries in technological development such as the United Kingdom (€799 million), India (€771.7 million) and Germany (€215 million). Only the US proptech market, with transactions worth €6.1 billion, is larger than the Spanish market.

    Digitalisation has come on fast: five years ago there were 50 proptech companies in Spain and today there are more than 500, with the consequent atomisation of the market that this entails. When a new sector begins to attract large amounts of investment, mergers and acquisitions soon follow.

    FOCUS ON PROPTECH BEGINS

    Back in April, Med Capital launched a fund to invest in proptechs. Med Capital Venture Fund I is the largest investment fund in the proptech sector, with €25 million to take small positions in disruptive companies in the Spanish real estate sector that facilitate real estate transactions and improve construction, maintenance or asset management systems.

    Another example is the Finnish proptech company Rive (formerly kodit.io), which after acquiring the Spanish company Lucas in 2021 is accelerating the growth of its business of buying and selling second-hand homes in Spain. To this end, it has just closed a €23 million financing round, led by IDC Ventures, along with other investment funds.

     

  • How Amazon is organising its succesful M&A strategy

    Amazon has recently been buying companies in large transactions. The company wants to grow beyond e-commerce and cloud computing, and to achieve this it moves quickly when it thinks it will make a clear profit from acquiring another company.

    One example: in 2015, Amazon acquired the Israeli chip manufacturer Annapurna Labs for 359 million euros. This allows it to build its own chips for the data centres run by Amazon Web Services and thus reduce their cost.

    Amazon’s biggest acquisitions in the las two years

    For most of its 28-year history, Jeff Bezos’ company has prioritised organic growth. However, this changed in 2017 with the purchase of Whole Foods for approximately 14 billion euros, the largest deal in the company’s history so far.

    From that moment on, Amazon changed its strategy, and in the last five years it has closed 7 of its 10 most expensive deals. In fact, in the last year and a half alone, the company has made its three biggest purchases after Whole Foods: the media company MGM for 8.5 billion dollars, the private clinic chain One Medical for 3.9 billion dollars and iRobot, the company that created the famous hoover Roomba, for 1.7 billion dollars.

    The objective of this acquisition strategy is to maintain Amazon’s scalability. M&A deals are a way to maintain the company’s historical annual growth of over 20%.

    Amazon’s three principles for company acquisitions

    Acting swiftly

    Amazon far outpaces its competitors in terms of speed. For a purchase worth millions of dollars, its simplified organisational chart requires the approval of just two executives. Meanwhile, companies like Google or Samsung involve more than five executives.

    Even in the case of large acquisitions, such as the recent acquisitions of iRobot and One Medical, Amazon is able to close them in a single month. Once negotiations have started, moving quickly is essential for Amazon. The reason is that the longer they last, the more likely it is that a leak will drive up the price.

    However, this does not mean that the company acts unthinkingly. Before submitting an offer, Amazon takes its time to study the market carefully and decide what it wants to buy.

    Seizing the moment: the iRobot example

    Amazon’s M&A team never enters into price wars. It keeps price expectations low from the beginning of the deal and always looks for undervalued assets.

    For example, Amazon first approached iRobot in 2016 with an offer that the home automation manufacturer rejected as low. Amazon bid its time and came back last May, when iRobot announced that it had missed quarterly expectations and cut its forecasts. As a result, its shares plunged 23%. This decline came on top of a 50% drop since February 2021 due to supply chain problems.

    Amazon took advantage of the circumstances and its financial muscle to offer iRobot a quick buyout for $61 per share, a price virtually identical to what it had offered six years ago.

    Preferably buy in cash

    Whenever possible, Amazon prioritises cash rather than shares. The company headed by Jeff Bezos foresees that its shares still have great growth potential. And this despite the fact that they have already almost tripled in price over the last five years.

    The last substantial equity deal was that of online shoe retailer Zappos in 2009, worth around $1.2 billion.