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Differences in M&A between the west and china:

M&A in China is relatively different than in the West. Indeed, there are financial operations such as the acquisition of "shell" resources that are unique to the Chinese M&A market. This is in part due to the high implementation of the govermnement in the market which has a major impact on the market which can lead to many market uncertainties and last minutes changes in policies. On a more implementing note, deal cultivation is relatively different between both sides. China puts the emphasis on this early key stage to have a more cultural mix between the two companies as the due diligence phase is critical. Moreover, it has a clear impact on how the deal paradigm is shapped between both sides. Whilst the West has a more financial approach with financial due diligence and the deal structure being one of their top priorities, China underlines the relationship between the two parties a commercially intuitive approach to the deal the most. Thus, the Chinese M&A culture seems to be more natural than the West one. As the regulations are more strict in China, deals can vary a lot whether you are dealing with an SOEs or a POEs while this is not true for the West. Furthermore, Chinese sellers have very high valuation expectations regarding their company as it is not rare to find PE multiples over 50. Ultimately, the VCPE industry is not as developed in China as in the West thereby M&A operations with only pure financial motives are quite rare but still present. Therefore, the Chinese M&A approach tends to be more strategic in order to create synergies and to develop an ecosystem between the companies but also between the products they sell with a related diversification.

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How create value in M&A deals

Rajouter éléments du cours According to Navigating M&A deals: Avoid the rocks and seek value creation by UBS most financial advisors have the assumption that the value created by an M&A deal can be measured by the EPS accretion after the deal is done. However, this seems to simplistic and UBS argues a different way. Value creation in M&A is a function of synergies, multiple enhancement and of the offer premium paid. Indeed, an M&A deal needs to generate a return in excess of the premium paid to be at least value generating. Moreover, synergies are the core of all M&A deals and measuring them is kind of difficult too. Nevertheless through implied return on equity (RoE) they can be measured. Indeed, through the size of the offer premium this can be calculated. Thus to add value to a deal the post-deal RoE needs to be greater than the cost of equity. Furthermore, the mathematical way to calculate the value addition of any deal would be through a ratio between market and book value. -

Differences between VCs and CVCs

Whilst both VCs and CVCs invested in young dynamic ventures, they are quite different. Indeed, first of they are quite different in terms of size, CVCs tend to do bigger deals than Vcs (23M$ on average for CVCs and 14M$ for VCs). This is mainly due to the fact that CVCs do not need to raise capital as VCs do and are not as much prone to the volatility of public markets. Moreover, VCs mainly only invest in a few selected industries such as the technology industry whilst CVCs invest mainly in related diversification or in their industry. Indeed, VCs main purpose for investment is solely financial whereas CVCs have a pure strategic mentality when it comes down to where funds land. CVCs also invest for a longer period and are not restricted to the 10 year cycle as VCs are. Therefore, CVCs are more prone to failure as they are more open to experimentations and to occasionnal failure. Thereby, CVC backed companies tend to be more innovative than Vc backed ones, this comes mainly from the fact that through CVCs, ventures are able to gain unique knolewdege from both the mother company but also from other ventures in their portfolio. Ultimately, this can also lead to some constraints as ventures backed by CVCs might only work with fewer companies than ventures backed with VCs.

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