Leading through M&A

Transcript

Leading through M&A

There's a few different variables that really drive M&A, right? The first one really has to do with the cost of capital, and it's really a huge difference when you have to borrow money, when that is five plus percent. There's been certainly a lot of volatility in the market in the last six months. So this is what might impede or hinder the pace of M&As, because then the market is not growing as anticipated.

So M&A has really become much less episodic and much more part of the overall growth algorithm for companies, and that's a pretty big change. 70% of deals are successful, 30% of deals are not. Now, 30% is still a very big number, so we shouldn't ignore it. There are a few things that you have to do right, and if you do that wrong, you fail. The most important one are boys down to the people.

Hello, I'm Tom Parker, and welcome to The Next Five podcast, brought to you by the FTPartner Studio. In this series, we ask industry experts about how their world will change in the next five years and the impact it will have on our day to day. In this episode, we'll explore the M&A landscape in 2025, how companies are dealing with uncertainty, as well as how executives need to lead and manage a company through a merger or acquisition.

Despite inflationary pressures, higher interest rates, geopolitical turmoil and expanding antitrust laws, 2024 saw a rebound in global M&A activity from the 2023, with deal value rising by 8% to $3.4 trillion, nearing that of pre-pandemic levels. At the start of 2025, there was optimism that the global M&A market would strengthen, with the expectation that inflation and interest rates would fall and a more favourable regulatory environment would exist. Yet, it was a slow start amid uncertainty.

The unpredictability of US trade policy under the Trump administration saw the global economic policy uncertainty index rise to a 30 year record high in early 2025, decreasing the appetite for deals. Markets hate uncertainty for lots of reasons. This is Brian Salzberg, Senior Managing Director and Global Head of M&A at FTI Consulting.

And so really the inability to model out a lot of scenarios, a lot of it was around tariffs, but other uncertainties and how the Trump administration would react was a big thing. And then there's also a lot of weight and see around interest rates. And, you know, the things that have changed are one, there's a lot more clarity around how the tariff policies are likely to play out, in particular, the work case scenarios, to that, similarly around interest rates, while there's not necessarily clarity around exactly when rates and if rates will go down. I think there's a clear view that we're at peak rates, at least for now.

And while I'm very focused on the US, the reality is that, you know, the M&A market really does take the lead from the US and the US is such a significant part of the value of global M&A. There's a few different variables that really drive M&A, right? The first one really has to do with the cost of capital. And it's really a huge difference when you have to borrow money, you being companies have to borrow money, whether it's private equity firms or corporates, when that is five plus percent, you know, that's a pretty big hurdle rate because you've got to be sure your returns are going to be greater than that and versus when that's two or three percent, that makes a huge difference. So certainly global interest rates and interest rate environment drive it.

The second one, again, is so many deals are global and impacted by global policies. And that's not just tariff policies, but that's also relations between large countries like India, China, et cetera. So they really drive risk taking and drive the ability to model the future. So that's really a second piece.

And the third thing is really a meeting of the minds between buyers and sellers. And what we've seen for a long time is basically sellers who still wanted unrealistic valuations for their companies and buyers unwilling to pay them and a lot of money sitting on the sidelines. And so, you know, those three things I would say is what put the big pause on M&A. And those are three things that have begun to open up and change and result in a stronger M&A market.

One company that has experience of multiple M&As over the last 20 years is Prismian, a multinational that produces cables used in the energy and telecom sectors. This company was born in 2007 with the IPO resulting from the acquisition of a government sector that's happened in 2005. This is Massimo Battaglini, CEO of Prismian.

The company has a great history of M&As. There have been a first wave of M&As in the 90s with the acquisition of Siemens, BSCC and other companies. But the real M&A is that the growth of this company happened in the last decade where we acquired Draka and General Cable. Draka in 2011, we gained access to a larger European market and with General Cable in 2018, we became a leader in the United States.

Those M&As were mostly transformational, so we wanted to consolidate the market, the market was pretty much flatish back then. With the acquisition of this company, we expanded the perimeter, we rationalized the footprint and we achieved significant cost surges. The last wave of M&As was performed on the counter in 2024 and 2025. Those are more bolt-on M&As, so meant to expand the portfolio, the customer base, obtain growth to M&As, obtain commercial growth to M&As. So these are not pursuing synergies in terms of cost, but only synergy in terms of additional revenues.

There's been certainly a lot of volatility in the market in the last six months, but mainly in the United States as a result of the tariff that they're producing and so on. This has created uncertainty in the market, volatility has created some sort of a shock in the local demand, so this is what might impede or hinder the pace of M&As because the market was not growing as anticipated. In reality, all this got resolved.

Now, tariffs are really meant to favor local producers in the US and disadvantage the importers, and we are a local producer in the US. 99.9% of the revenues in the US we produce locally. So getting past this uncertainty in the market, M&As for us remain an important driver of growth, complementing the organic growth that we achieve with CAPEX, expansion of capacity, and so on.

Of course, with the market volatility, there was also some financial market volatility, but I think we got this over. I think when we look ahead, we see more stability, and for many companies like us, M&A is a crucial asset to capitalize on to achieve the growth the company wants to achieve in the market. There's no other way. The organic growth takes too long. In some situations where you're not a market leader, you have to develop a product-to-customer relationship, know-how, and talent to achieve that organic growth is somehow impossible. So M&A is a very nice shortcut, but you have to be able to merge rather than acquire.

So data center is a growing case in terms of demand of power cables and optical cables, mainly in the U.S., but also Europe and APAC are following suit. We were not, one year ago, a great player in the data center case. We realized that we have this weakness in our portfolio, in our customer relationship. We had some gaps that we want to close, so that is where we start pursuing the acquisition of AnchorWire, which is a significant player in electrification of data center.

So they produce the cables that connect the buildings in a campus among them and connect the campus to the grid outside data center. And then we follow this acquisition of Anchor for electrical cable with a channel acquisition, because with channel we got the connectivity components, the product range that is needed in data center to connect optical cables among them and connect them to the grid. So this use case is a best example where our agility and our flexibility in following the strategy has been applied.

So we realized that the growth in this data center case was stronger. We didn't have the full portfolio products and capabilities in house. We resorted to specific targets, M&A targets, to compliment our production base, our portfolio and customer reach to become relevant data center. Now we have a 30% share in the data center use case, which one year ago we had only 5%. It's an example of how fast we can catch opportunity by increasing leadership, thanks to Bolton M&A's.

Clearly M&A is a critical part of the company's growth strategy, but has this always been the case? Back to Brian.

So M&A has really become much less episodic and much more part of the overall growth algorithm for companies. And that's a pretty big change. I think there's a few reasons for that, right? One is just the pace of change, the pace of innovation and the intensity of competition is so much greater than it ever was. And there's just no way that mature companies can innovate at scale with the capitalist model we have. So you have to buy it to compete. So that's kind of the first driver.

Second driver is that getting M&A and integration done is easier than it used to be in large part because of technology. So many things, whether they're financial systems or human resource systems, HRS systems, it does make the job easier of integrating companies than it used to be. And then we've got a lot of tools that allow us to do that, including tools that look at big data and contracts using AI. So the playbook has become easier.

And then the third thing, this is like a really important point. I've been doing this for 25 years and 25 years ago, when I first started, I was told that 70 to 90% of deals fail. And it's often cited to some study that I haven't really been able to find, but a lot of times it's attributed to a Harvard study or this study or that study. So the reality is this, that statistic, at least today, is just simply not true. I would say from my experience working on a lot of deals, it's probably flipped. So I think 70% of deals are successful and 30% of deals are not.

Now, 30% is still a very big number. So we shouldn't ignore it. We're talking five, 10,000 deals, significant deals a year at least. And so 30% of that is even a big number. But the point is that's urban legend. And the other thing to note about that is that there's not even a definition of what does failure mean. And that's an important point because really there's no control. There's no way to look back and try to compare a deal that happened to, as if it didn't, because you're sort of making that up.

But I think the important point is that, like I said before, you'd be very hard pressed to find successful companies in any industry that have not used M&A as a growth lever and whether it's, you know, making sure that that deal has exceeded the cost of capital, which is not really that high a bar. At least it hasn't been. Most deals are successful. Now you have to get integration right. You got to get the culture fit right. If you have the right advisors and you have the right experience and you follow the right playbook, your success rate in M&A will be significant.

Leading a company through M&A is highly complex and challenging. Every merger or acquisition is unique. Yet there are do's and don'ts for improved success. Clear strategy and effective communication is paramount as is understanding the technological change management required, especially in the rapid evolving world of AI. This all leads to the power of culture.

Putting the financial costs aside for a second, there is a human cost to factor in as every M&A is going to impact the workforce. How leadership guides their organization through a difficult, stressful time is crucial. There are a few things that you have to do right. And if you do that wrong, you fail. The most important one, boils down to the people.

So if you don't create a one team approach, if you don't set a new organization coming from the merger to company, immediately from the one, you will fail. You have, for example, to set a commercial organization on the field immediately because you are acquiring another company who sell your different product to common customers. And to have two faces on the market is actually detrimental to your performance and provide our competitor a significant advantage.

So the first object is to protect, preserve revenues of the combined entity, and for this one commercial organization from name one, one global organization across the different financial is important. Even more important is to get the buy-in from the company that you acquire. In reality, we don't acquire company, we merge company. It's important to say that. So we're not taking over company. We're merging company and make the combined entity become one single company and one single team.

And you know, when we acquire General Cable, the pre-closing phase became very relevant to the success of integration. You had to spend time with the people ahead of the closing. Of course, after the signing, otherwise before it would not be possible. But if you listen to people, you start knowing these people, what they do, what is the portfolio projects and portfolio product they have in their company, you have to do some pre-work in order to make sure that when you close the deal, you can really create one single organization from the one and also inspire these people with one common vision.

The buy-in of the organization that you merge with, you can only attain by making them feel relevant to some new ambition that together we can create. Make them feel part of the strategy or the synergies that you want to achieve. So make them feel important. So listen, consider them inclusive, motivate them, create passion in the environment, also even more effective is to create new values for the combination of the company.

So this has happened in our history of M&As. As soon as we realized that the company that we merged with had some different values than us, some complementarity, some different, we create a new blend, a new mix of value for the combined entity. So we adjusted our company values over time as we were integrating another company. So changing values and reflecting the new values, the factors of the company that we merged with that created one sense of belonging very strong and beyond that as important to create an ambition that can inspire entire people.

Today we have in our Prismian group to tell that the people belongs to a company that we merge with. So this is important to vehicle the message that we are really not taking over other organization and leveraging our power to become more relevant in the market. We leverage the power resulting from the merger of the two organizations. We show flexibility during the merger. If we have to sacrifice our people because we find someone who is better, more capable in the company we merge with, we sacrifice our people. So the value of the company we have is really focused in just on the variety of people belonging to our organization, thanks to the inclusive approach of the M&A.

Earlier this year, Kraft Heinz separated a decade after they merge. The conglomerate had struggled and lost 70% from their share price since the 2015 merger. So what does this signal about major M&As and what can be learned from this example?

Here's what I can say about the M&A market in terms of a lot of the large companies that you see a bunch of companies bulking up and getting bigger, and then you see companies in certain sectors that are breaking themselves up and getting smaller. The sort of cynical view would be is that there's a bunch of bankers and lawyers and consultants who are sometimes pitching companies that bigger is better and sometimes pitching that smaller is better. But I think the reality is that everything goes through a business cycle and the truth is that you can in the near term, usually create value by bulking up or putting two things together through largely cost synergies.

I think what companies find is that the revenue synergies are much, much harder to get. And then at some point, the cost synergies go away, like you can usually achieve them within two to three years. And then you get the pressures from shareholders and you get to a point where you become too big to be a target and sometimes too big from an astromanic trust perspective, too big to buy new things. And so the answer is to shrink to grow or differently try to create value by breaking things apart. And sometimes that's because different parts of the business is maybe more attractive and sometimes that's because the growth multiples you can get are different.

But I would say particularly in the consumer packaged goods space and then the food space, what's going on now is there's a tremendous amount of pressure in that space for lots of reasons. One is their ability to take price diminished in part because of all the scrutiny on pricing. And then two, you've got mega trends like the GLP ones, et cetera, that are putting a lot of pressure on that industry. So one answer is you split things in half and you've seen a lot of very big consumer goods companies either splitting up or they've got activists in the stock that are now suggesting that they sell things or split up.

So look, it's part of a mega cycle. I've been doing this for 25 years and it's just an interesting cycle of get bigger by buying more things and then get smaller by selling more things. And then someone else is going to buy them. The cycle will continue, which does keep people like us in business.

So advising executives on M&A, I focus on a few things. The first is that number one, small deals and large deals have very similar complexities and work required. And so a lot of times people underestimate and think a small deal is much easier than a big deal. And that's just not often the case. So that's the first thing. So if you're going to put the resources and time into M&A, just make sure that it's going to move the needle.

The second thing is you really got to be very disciplined on what I would call the looking at the deal thesis. So why you're doing the deal, the target operating model. So really figure out in advance where you want to get to, and then be pretty ruthless and command and control on how you get there because you've got a limited window upfront in setting the groundwork. And whether that's around cost synergies or cost takeout or otherwise, you've got a limited time to kind of set the frame and really drive it. And I think all too often in the process, there's too many compromises that happen. And then you really sub optimize the deal and trying to fix that years later is difficult.

And then the third thing, again, I would say is the people and, you know, you got to make the hard decisions upfront. And typically what you see in these things is the classic bell curve, right? Where you've got 20% of the employees or the executives that are super excited about the deal and they're the keepers. You've got the 20% of the opposite end that are the naysayers and will torpedo the deal. And you've got to get rid of those people very quickly. And then the middle people, it's really important to bring them on for the ride and get them excited. So those are some things that we always talk about and really focus on when we talk to executives as they're, you know, beginning their M&A journey.

So what will the next five years look like for M&A? I think it will