The reshaping of the mergers and acquisitions market

published on July 13, 2020

You you you you hello and welcome to this the last in the side business school series on leadership in extraordinary times at

Least the last for this particular academic year and in this event we'll be looking at the effect that the pandemic has heard on reshaping the mergers and acquisition market I have with me Tim Gulpin who is a fellow of the Business

School a real expert on mergers and acquisitions with whom I teach the M&A course on the ember' and the MBA programs he's the author of a forthcoming book on M&A called winning at the acquisition game which is going

To be published by Oxford University Press in August of this year before we get going let me just remind you that you can pose your questions to us on the chat function of the platform that you're using so Tim let me just begin

This by asking you why you think we should be interested in M&A during the pandemic other not bigger things that we should be worried about than just M&A yeah it's a good question because you know the global solving the global

Health crisis is paramount obviously for everyone around the world and mergers and acquisitions you know as a secondary topic to that primary topic but that being said everyone that's viewing will be impacted by M&A

At some point in their career either as a employee for a buyer an employee for a company that gets sold they may work in the M&A industry as a banker an attorney a consultant or even as a customer companies getting bought and sold all

The time that changes sometimes our loyalty to companies that sort of thing so M&A is going to impact all of us that's one factor and one reason why we should all be interested secondly a a lot of people working in

The industry are in a wall at the moment because M&A isn't a law and we'll get into those data in a few minutes but you know people are wondering about their jobs you know are they I'm gonna gonna come back are they going to be doing M&A

Anytime soon with kind of a trickle of what's going on right now and then finally M&A is a real indicator of economic activity so when the economy is picking up M&A picks up or when M&A picks up the economy picks up can go

Both ways so as we come out of the pandemic and the economies around the world start opening up M&A will pick up so we need to be aware of what's happening in the market as it starts to pick back up okay thanks for that so so

What has been happening to M&A during this crisis well kovat has definitely caused in near-term downturn in deal-making so deal-making has dropped off significantly from last year and really the last ten years and we're

Gonna see some data on that in a minute I mean they will pick up again so if we want to go to our slides we can take a look at some of the impact that it's the pandemics had on the M&A landscape in general and then I'll also talk you

Through for a couple minutes about how it impacts both buyers and sellers and then we'll take some Q&A from the audience as well so in general you can see in the first bullet that just 485 billion worth of deals have been done

Since the beginning of April 2020 it's down more than 50% so over deal deal makings drop by I don't from the same period on my team there's a lot of zombie deals so they're caught between signing and closing so

When a deal is signed and when a deal is closed there's a gap in between and right now some of those deals that would have closed without the pandemic are in limbo and the buyers may be looking to walk away from that and the next bullet

Down to a deal that was done prior to the pandemic and then the target company's valuation may have dropped significantly obviously the economic future for that acquisition is very uncertain so people are trying to invoke

The what's called the Mac clause or material adverse change which is in all sales and purchase agreements and we'll see how that ends up for a lot of these deals it'll essentially end up in litigation for most of them because

There's a lot of contentious viewpoints about whether the Mac Clause will kick in for these zombie deals that are out there waiting to close where the buyers trying back out volatility in financial markets elevated economic uncertainty is

Complicating valuation so valuation as anybody who's worked on trying to project what a company is worth not just today but in the future is based on having some semblance of view to the economic future in that industry and

Globally and right now that's a big open question so valuation is complicated more an accelerated industry consolidation you're seeing industries that are struggling there will be struggling companies that will be bought

Or have to merge to survive we'll see that in probably the airline industry will see that in retail hospitality restaurants we're already seeing a lot of receiverships bankruptcies being declared so the industry consolidation

And then the banks attorneys and consultants are repurposing their transaction staff to temporarily work in restructuring units so if there's not a transaction to work on people are being repurposed to

Helped their clients do restructuring bigger firms can pick up the slack with some of their other service lines smaller boutiques are now repurposing their kind of value proposition to their clients to help them restructure

Restructure that restructure operations really to weather the storm until deal-making picks back up and then as a pandemic subsides there'd be a pent-up demand animal spirits will kick back in again as the economies open up it'll be

Another M&A wave we're just at the end of about a ten year wave that started after the last downturn of om9 and this has ended that basic basically the longest M&A run in history as far as a wave of M&A and that will pick back up

As the economies open up let's go to the next slide so a bit more specifically M&A for acquirers on the on the buyer side availability of assets distressed companies created it's a buyers market assets are a bit cheaper stock market

Has rebounded but there are struggling companies and the valuations have dropped so it is a buyers market you know a cheap assets available fewer cross-border deals there's a lot of protectionism going on there was even

Before the pandemic and now with the pandemic the EU the UK others have said don't come searching for bargain companies in our locations so they're trying to protect their industries from being taken over because they're in a

Difficult situation at the moment so a lot fewer cross-border deals will be occurring at least in the near term difficult for buyers to conduct due diligence obviously without being able to visit that's opening up a bit more

There's been a lot of creativity about due diligence with GoPro visits over video drone visits flyovers to view assets plants equipment that sort of thing for firms that still had access to debt

And financing they have exceptionally low interest rates so money is cheap and when money's cheap deals get done so there is cheap money to fund deals if companies have access to that debt capital and then because of low asset

Prices acquirers will fall in love with deals just because they're cheap and they'll ignore the organizational fit so a deal might be cheap but it may not end up being cheerful to throw a British phrase and companies may not get along

Because they ignore that organization or a cultural fit between the companies just because a company is cheap that may not be a great fit for your organization next slide please and this is a bit of data that was

Collected for almost 30 years from 1982 Oh 18 the just essentially showing that when you buy during downturns you have a much better chance of succeeding with your deals there's a lot of data that's come out over the years that you know

Deals destroy value often for buyers or at least they struggle to gain the value but if you buy during a downturn you have about a 10 percent higher return on your acquisition than when you buy in a strong economy so you can see that very

Clearly from this data this was across almost 10,000 deals over 30 years next slide please and then from the sellers perspective they're desperate to generate cash cash is king right now people need it to

Weather the storm those that are cash poor putting more core and non-core assets up for sale to generate cash innovative companies that have successfully addressed ovid or in an industry that is addressing kovat

Whether it's in biotech healthcare they're being highly valued by acquirers so they're being sought after but their valuations are going on so they will be expensive but they are attractive from their future potential

From addressing the Kovan crisis if they do not already have them in place to stress companies are putting in poison pills again it's not just regulatory barriers that are going up to try to prevent entities from coming in and in

Buying assets cheap distressed assets but the assets themselves are putting up their own barriers the management of the companies are putting in their poison pills to provide try to prevent those takeovers and then again because they're

So desperate to sell on the south side sellers will ignore organizational fit again you may be having a suitor come along they're ready to buy and you need to sell but you may not be the best fit for that acquirer

And that organizational fit again the culture clashes that can occur post-deal can really come back to bite the company so that's kind of the general M&A landscape sellers perspective buyers perspective and there's a lot going on

Right now a lot of uncertainty but it will pick back up again let's go to the next slide okay we do have a poll so as I just ran through some of the implications for the broader M&A landscape and for sellers and for buyers

We want to take a poll of the audience there's a lot of M&A professionals out there there's a lot of people who work for companies that are either being bought or sold or have been bought or sold over the years may be bought or

Sold due to the pandemic so please go to the URL the mentee com use the code 50 23 25 and make your selection and we'll I'll take a couple questions and I see a few questions are coming in and we'll come

Back to the poll once people get a chance to respond drop scowl on your arm you thanks ok thanks very much for that yeah Tim so I just want to pick up on some questions that are coming in so firstly let get

Going back to your point about we've just ended the longest takeover boom run in history what what what drove that long run boom and and do you think that those factors are essentially going to continue and

That therefore this is really just going to be a blip before we get back onto that long run boom scenario well M&A waves are creative for several reasons so one is cheap financing I mentioned that a few minutes ago and is one of the

Bullet points on the the buyers slide and Finance things gotten even cheaper so that isn't a reason that the M&A run wave that we just came out of has stalled but it will be a reason that another one begins another reason for an

M&A wave is M&A is a herd mentality so his industry start consolidating and we see that especially coming out of distressed periods economic periods like we did in Ohio nine various industries started consolidating for survival for

Strength and we will see that again again coming out of this pandemic and M&A waves are created also when economy start picking up M&A picks up so that's the main reason that I mean a wave and it was the economy's

Shut down as we know around the world and essentially is essentially as the economy shut down M&A shut down so it wasn't that there was that cheap debt didn't exist she that exists so that was not the reason industry consolidation

Was still going on it will go on again but really with the economy's shutting down in that wall of the economy it really just cut off that 10-year M&A wave that we just came out of okay and which industries do you

Think are going to be the ones that are going to be most actively looking to buy going forward yeah I'm from an industry perspective it's really more the stronger companies so I would I would kind of shift the question and say the

Companies with stronger balance sheets with more cash available there will be a lot more cash deals done although stock has gone up for a lot of companies especially in the tech industry so as we've seen recently so they'll use stock

As a currency so tech will be an industry that will do a lot of acquisitions especially the stronger companies in tech with higher stock valuations and they can use that as a currency and you we will see other

Industries that will consolidate as I mentioned a little while ago some that are struggling and the stronger companies in those industries will be the buyers in retail hospitality restaurants travel and we're seeing

Private equity looking at those industries because they can buy cheap assets and cheap companies right now even private equity will use more of their cash there obviously their acquisition model is typically a

Leveraged model where they borrow the money to buy the the assets but they will use a lot more cash during this period as well shifting their kind of acquisition model a bit and and and which do you think is going to be the

Main target industries which yeah so on the sell side it's the weaker companies you know you're looking at again back to those struggling industries restaurants hospitality travel retail we're already

Seeing a lot of those companies declaring bankruptcy going into receivership and they are going to they'll be bought so the struggling companies will be bought there will be people that feel like they

Can coming out of this economic downturn buy buy low and sell them high as the P model is so they will swoop in and grab companies on the cheap restructure those companies again restructure the debt restructure their operations strip out

Costs get rid of non-core assets so they'll actually buy and sell a bit as well so we're really looking at those distressed companies within those distressed industries that I just mentioned that'll be there to take to

The market recovers say it again I'm sorry um do you think it's gonna take before the market company okay that's the you know multi-billion dollar question how long it will take you know we need to get the global health crisis

Sorted out you know obviously everyone's working on their vaccine oxfords leading the way in that as and we'll see how soon that is viable and comes out when the economies start picking back up you know all projections right now by

He is really at least until middle of next year that the economies will be down and M&A will be down that it should start picking up next year it will start picking up as people can do more site visits for their due diligence they can

Hold more face-to-face meetings now even with the physical distancing or social distancing you know people wearing masks but they can still meet physically rather than have to do it over video we have spoken to some buyers you and I

I've spoken to some of our guest speakers and our mergers and acquisitions course that are still doing deals and they're having to you know make those acquisitions with a little bit more leap of faith than they did by

Doing them over video and so people are taking that approach as well so best guess a year from now we'll see a pickup but that's watched this space yet to be seen right mm-hmm and we've got a question in from court

Saunders who says with the impending US dollar shortage in emerging markets in China how will this impact on M&A yeah so I you know the dollar shortage that will make you know depending on those economies in the emerging markets you

Know when the economies are down its shortage of funding their companies their assets will be cheaper and so they'll be takeover targets I forgot to mention actually on a geographic basis I mentioned industry particular companies

But geographically in the countries that are struggling for capital and that's actually a really good question and a really good point that you will see a lot of targets being acquired in geographies that are struggling so and

Then there are a lot of countries that are going to have outbound buying so you're looking at some of the cash rich companies a lot in Middle East China are looking at doing acquisition so it works both ways when they have the

Capital available they will make the acquisitions when they don't and they will be the takeover target okay just before I come on with the next question I've been asked to say that apparently the poll didn't work so please use a

Code 50 23:05 that's five zero two three zero five so if we could perhaps have another good hopefully our tech people are in our background can sort that out and get the poll working so could you give some examples of protectionist

Policies there have been comments so from the head of the European Commission she was mentioning several weeks ago that they were looking at putting in some more barriers to foreign takeovers the UK has mentioned that as well so

Under the guise of quote-unquote national security national security used to be kind of a ancillary review component of the review process but now it's become more front and center and national security isn't just for defense

Type firms you know for weapons and and technology come more technology and data and fallen under that umbrella called national security so we're hearing that in various geographies around the world whose companies have been struggling and

That are attractive takeover targets because there are low valuations so the European Commission we've heard that several weeks ago the UK and a few others that don't come to mind right now but those are

Definitely looking at putting in more barriers to foreign takeover okay I gather the poll is now work very well got lots of responses so why don't we take a look at the poll at this point okay sounds good

Our tech people will put up the results should be able our chart there we go okay so based on our audience and some people are still voting so the pulse which shifts a little bit kind of the big three that are coming in or regional

Protectionism is the most important change number one just popped up number or number four just popped up the first place so buyers I'm cheap deals and sellers desperate to sell will ignore organizational fit and then in our third

Place is accelerating industry consolidations most important so that one about organizational fit it's really important M&A is a numbers game but it's also a people game and when you only look at the numbers you do that at your

Peril so because of the training education experience and backgrounds of most deal makers coming out of finance accounting and more technical backgrounds you often see even in normal M&A cycles people ignore organizational

Fit meaning cultures talent and they do that at their peril it often comes back to impact the numbers in a very negative way especially in the longer term after an acquisition or a merger occurs and if you fall in love with the deal now

Because it's a cheap deal and a cheap asset be careful of getting into a marriage with a company that you don't fit very well organizationally and culturally with so our audience obviously has rated that as our number

One most important change occurring during this downturn so the audience is enlightened or at least a portion of them great okay question from se7en kuma do you think big enterprises are willing to

Take the risk of putting finances into new acquisitions before the pandemic ends yeah yeah there's still deals going on I mean deal-making is dropped by 50% but it hasn't dropped by a hundred percent

So there are still deals going on as I mentioned a minute ago some of our guest speakers who are on boards and major companies in the UK and other areas of the world have indicated that they're still doing deals on they'll be in a

More risky environment having to do deals over video rather than face-to-face M&A is a relationship industry and building relationships striking deals pursuing those deals and closing those deals over video is

Different than being able to shake hands and sit across the table from someone so but there are still deals going on and yes is the answer that companies will still buy companies even during the pandemic okay so I'm gonna wait but

Others will make the move now question from Subhadra kun dory can you elaborate on poison pills this so that's yeah you know I can't do a full poison pill discussion like we do in our I'm an a-class but essentially

They're mechanisms that a company's board will put in place and management team to try to prevent a takeover to make it more expensive actually when a buyer comes along it may trigger what's called a change of control so when a

Company gets bought especially in a hostile takeover where they don't want to be sold or bought and they are purchased anyway the shareholders vote in favor of the acquisition there the poison pill

Will prevent that or try to prevent it by making an acquisition more expensive when that poison pill comes in by diluting the shares of the buyer as an example the sellers shareholders to buy more

Shares again diluting the shares of this of the buyer having large management payouts compensation payouts significantly large to make it very expensive so there are prevention mechanisms to try to prevent hostile

Takeovers okay there's a question here from Scotty that's actually more directed to what I'm going to say but so you might want to ask that of me okay finished but there's another one from Carl

Elliot elet from the US can you comment on the variability of valuations that come with these uncertain times and the risk of future burdens to balance sheets of acquiring companies yeah absolutely so anybody's done valuation as I

Mentioned a little while ago knows you're trying to project predict the future you're trying to do future projections of cash flows and it's difficult enough as it is even during normal quote/unquote normal

Economic times to project those future cash flows I in the near term over in that say five years and then when you get out for what's called your terminal or horizon value it's often best guess at that point trying to make an educated

Guess but it's a huge variable and the future cash flow projections that extended terminal horizon value projection has a huge impact on the valuation of a company and right now nobody knows where the economies are

Going around the world there's sputtering back to life as different countries are opening back up but you know the cash flow projections that were done just before kovat those are out the window trying to do them

During kovat again how long will it take for economies to pick that back up how quickly will that happen how robustly will that happen so best practice run a lot of different models and put in a lot of contingencies and then really try to

Look at those models and say you know what's our worst-case scenario and we'll probably have to build off of that whereas in a good economy people often go with their at least best if not best case scenario at least moderate

Case scenario but right now it's probably better to look at your worst case scenario at least for a while okay and one final question from Taha do HUD wallah works at Thomson Reuters will we see

Larger tech companies doing deals for vertical and horizontal acquisitions to the product line yeah absolutely they do them all the time there's a lot of deals that tech company the big tech companies do that we don't even see because they

Just don't make the headlines because there's they're small deals blips on the radar we hear about the big deals you know the whatsapp being acquired you know for 19 billion those make that the headlines but the small deals they those

Will occur the big as I mentioned a little while ago the big tech companies their stock valuations are high and getting higher all the time they will use that as a currency and so they will continue to buy to build their vertical

Business lines and even branch out horizontally as the questioner mentioned so okay so I appreciate the questions and the response to the poll so like to turn it over to Cowen for his portion okay well thanks Tim thanks for an

Excellent account you you you you've given what will mine perhaps cool the conventional perspective on M&A and the influence of coronavirus in that context I'm going to be looking at it from a different

Perspective that's a newly emerging view of the firm in relation to the purpose of a company that goes beyond financial performance to look at its reason for existing and I'm going to suggest that if one applies

That lens to MA then one gets a very different or potentially different perspective on the M&A market and has some quite profound implications for analyzing M&A and what gives rise to its success or

Failure so the the sort of conventional view is best put in terms of what a term strategic acquisitions in which an acquirer seeks a target as a way of promoting its strategic objectives there are obviously alternatives to which Tim

Alluded in his presentations which are financially driven acquisitions that we in particular associated with PE firms and PE firms are thought to bring advantages in terms of potentially stronger forms of governance then listed

Companies can achieve and then then can thereby realize financial gains by acquiring firms and restructuring them now if you have the first slide in my part then what you can see from this slide is that indeed M&A activity did

Fall off the cliff in the last quarter and it did so both in relation to the volume of acquisitions and the deal values which pushed both of them back to levels that we are only saw during the worst period of the financial crisis or

The aftermath of the financial crisis and if we go to the next slide we can see that one of the main drivers of acquisitions and the factor that's most closely associated with the takeover waves that Tim was alluding to is the

Stock market prices and this is the relationship between aggregate M&A activity and an aggregate index the MSCI World Index of share price and you can see how closely related the two are now that points to the notion that quite

A lot of acquisitions may be driven by financial considerations potentially in terms of miss pricing that goes on in stock markets miss pricing in terms of the share price of both acquiring and target firms if we go to the next slide

We can see that although there's been this falling off in terms of total value and volume of acquisitions that in relation to the finance private equity driven deals were seeing an uptick in terms of the proportion of deals that

Are in a driven by private equity as indeed was the case around the financial crisis and that that again points to the notion that deals may at least in part be driven by financial miss pricings not only going on in the stock market but

Also going on in debt markets and in particular the possibility of there being under pricing of debt that private equity uses to launch acquisitions now in essence private equity is a money-making machine that's driven by

The interests of their investors many which are institutional investors which have a particular focus on and requirement to promote the interests of their investors who in many cases are predominantly focused on financial

Returns so private equity is essentially driven by the returns that it can generate from taking over company's restructuring them and selling them off again but there's also been as we if we go into the next

Slide a significant shift in terms of the focus of what the institutional investors are looking at with a growing emphasis in terms of factors such as ESG environmental social and governance considerations alongside just pure

Financial returns and this shows the substantial growth that's taking place in terms of sustainable funds that have been invested by institutional investors now there are a number of reasons why this is happening but one of the main

Factors is a growing concern about some of the risks to which institutional investors are exposed through the investments that they're making in the corporate sector there are all essentially what will might term a

Systemic type that is to say that they're exposed to environmental risks to social risk to regulatory risk political type risk and that those risks then in turn raise the essentially raised the cost of capital for

Institutions investing in firms so there's been a growing interest in the extent to which institutional investors and companies should be trying to mitigate those systemic risks that they're imposing on their investors

Through engaging in more sustainable responsible type investment activities and if we go to the next slide we can see that indeed there is evidence to suggest that companies that placed a lot of emphasis on ESG during the downturn

In share prices around the corona virus pandemic from the middle of February to the middle of March outperformed companies that had lower ESG ratings and if you look at the lower half of the slide you

Can see that that was also true during the subsequent up term so that it looks as if high ESG companies outperformed both during the downturn and the upturn the significant upturn that subsequently occurred in aggregate share prices in

Terms of their share price returns so if we begin to see a shift in focus of institutional investors perhaps because what they want to de-risk themselves in this way towards more sustainable ESG focus responsible type businesses then

That may well be reflected both in terms of the way in which the private equity firms make M&A decisions and also in terms of the way in which strategic buyers act because obviously the strategic bars in turn of institutional

Investors are holding their equity and will be driven by similar considerations but there's a third element that's entered into the acquisition market over the last couple of decades and that takes a somewhat different form and that

Is from hedge fund activists now hedge fund out to this don't in general acquire all of the shares in the company they might acquire for a block of shares and companies but nevertheless they are acquiring essentially a significant

Controlling shareholding in a company and they then restructure on the back of that and if we go to the next slide we can see that there was there's basically being a significant growth certainly up to the financial crisis that then went

Down but then has grown back up since then in that in terms of hedge fund campaigns if we go to the next slide we can see that that's being continued up until now a steady growth in the number of edge

Font activists campaigns that we've observed over the last five years or so now the importance of that is in terms of the objective function of those hedge fund activists now private equity firms might be investing for periods of five

Seven years or sometimes more than that hedge fund activists are typically investing for periods of two three four years or so basically turning around companies as quickly as they can and getting out as fast as they can

Basically on the back of trying to achieve as high a return on their investments as possible now one of the consequences of that has been in terms of the types of firms that they've been targeting and one group that some

Evidence that a study that Rudy Durand that I should say and a number of his colleagues has been undertaking looks at the probability of being targeted if you're a high corporate social responsibility company focusing on these

Factors that go beyond just pure for natural returns and finding as the next slide shows that there is a significant positive relationship between being targeted for a bid and your corporate social responsibility score and the

Argument behind that might be that those are regarded as essentially wasteful expenditures that companies are making and that they've got if they got focused better on financial performance then there's a potential for turning them

Round and yielding higher returns for shareholders so they become potential targets for acquisitions and as the next slide shows that consequence of that is that that has a negative impact on the way in which

Those companies then engage in corporate social responsibility programs that's to say that they jettison them and they become if anything relatively low activity companies in the field of of corporate social responsibility

Now what this then brings out and is that the distinction between strategic and financial buyers is potentially an important one but really overarching all of this is the significance of the purpose that lies behind acquisitions

And if one sinks in terms of purpose not just in terms of strategy then what one's doing is ones really looking at a much longer term perspective on acquisitions because what a purpose is is the fundamental reason why a company

Exists and that if one's looking at it not just in terms of a relatively short term three five-year strategy but in terms of the fundamental reason why they acquire exists and why the target firm exists and thinking about it in those

Terms then acquisitions take on a very different flavor and in essence what then is driving acquisitions is the notion of the natural owner whether or not a particular acquirer is a natural owner of the target firm and if one

Looks at it in terms of trying to find a natural owner then the objectives should reflect interest that first of all are much longer-term than one is looking at in relation to just a strategic implement

But also it means that one's looking at factors beyond just financial performance because as I was just emphasizing if you are taking that longer term perspective then these other risk factors of the political the social

The regulatory the environmental they become much more relevant to both via acquiring company and the target firm and that means that in terms of it the way in which one's trying to identify potential acquisitions in with the wagga

Target should be looking for a suitable natural owner is in terms of a fit that allows very target and the acquirer to better achieve their purpose over that long term profile and in terms of all of the factors that drive the financial

Performance so it's not just thinking about well what gives rise to their highest share price return in the short term it's saying one of the factors that give rise to the best acquisitions that cause the performance of the firm to

Really move forward over a long term period and to drive long term returns for the investors in the firm so in that regard then the shift of attitude of institutional investors is critically important because it is a driver of the

Way in which PE and strategic buyers both operate and the intervention by the hedge fund activist in placing greater focus on relatively short term for natural returns is essentially impeding a move towards a more purposeful

Long-run broader set of objectives of companies and in that regard it's interesting to see that there been some initiatives recently in terms of thinking about well whether or not one can expect a new

Piper hedge fund activist to come into the market that is more focused on the purpose of business focused on that long-run value creation and the factors that really drive that long run value creation beyond just short-term

Financial performance so for example there was the announcement last week by Jeff Rubin and Lynn Forrester de Rothschild that they were forming a new hedge fund activist called inclusive Capital Partners that's going to be

Focused on exactly that type of hedge fund intervention trying to spot companies that write for not just the short turnaround in terms of financial performance but really driving purposeful companies encouraging

Companies to be more purposeful going forward and if that begins to take off and for the reasons that I've just suggesting a lot of the institutional investors might be very interested investing in that type of had fun

Because it aligns with the factors that for example an index fund is interested in mainly those systemic risk exposures and helps them to ensure that those get embedded in the companies in which they're investing ok so let's just take

Some of the I've got two poll questions that I'd like to be addressed so could we please just put those out okay so if you could use code 99 54:31 to answer the question do you think that financial buyers will increase or decrease in

Significance relative to strategic buyers in M&A over the next few years do you think it's going to do increase significantly slightly main about the same decrease slightly all decreased significantly so that's the first poll

On 99 54:31 between go to there max though so the next poll which is on 12 36 51 is do you think that ESG considerations would increase or decrease in sniff against as a risk factor in

Acquisitions again an increase significantly increased slightly remain the same decreased slightly or decreased significantly so if you could put your views on that poll into twelve thirty six fifty one that would be great so

While we wait for those to come in why don't I hand it back to you Tim to pose and questions okay so actually a few really good questions came in so what do you think is the role of M&A and sustainable investing and building back

Better as the phrases these days absolutely is central because by building back better what people basically mean is that companies should be Purpose Driven that is to say that they need to promote

Financial performance but through a purpose that seeks to do it in a way that benefits us as individuals societies and the natural world and that focus on what I term as being profitable solutions to problems that we face as

Individual societies in the natural world are ways of driving better financial performance certainly over the long run now to do that you have to make the right investments you have to invest in those things that are critical

Towards being able to solve those problems and you often have to bring in expertise that your company currently doesn't have and so being able to partner up with others is one way in which you can do that and essentially

Creating an ecosystem of companies that together can help to solve that problem but so too is the process of acquiring other companies so thinking about acquisitions in this context of essentially creating a mechanism by

Which one can produce more purposeful companies involves acquisitions in doing actually what I'm talking about thinking about what's the natural owner what's the natural partner for that long-term purpose objective of the acquiring club

And also the target firm that is looking to have a a buyer that can help it scale up and really achieve that objective on a much bigger scale than it can do on its own so both from the point of either require and the target verb it's

Critical okay and a question about valuation and how much are we building climate change and related risks into valuations and is affecting pricing very much those so it's just started so this has been happening over the last year or

Two that there's been increasing focus by institutional investors on environmental risk and it's begun to be reflected in risk factors that are used by institutional investors so that is something that's been brought about as a

Consequence of a growing pressure that's been brought to bear on the institutional investment community and it's indicative of a general trend that we're going to see in this area where as I'm mentioning institutions are becoming

Increasingly focused on this notion of the systemic risks such as environment that are impacting on them that should be regarded as risk classes and therefore should be reflected in the way which their pricing equity and they are

Then looking to the corporate sector to respond to that in terms of the way in which they are making investment decisions including in M&A okay and this one relates to upcoming mergers and acquisitions because of Kovan in

Especially struggling industries like the hospitality sector well the strategic view or the purpose view prevail in their upcoming M&A transaction Oh a wonderful question and and and let me just say while why

Purpose is such an important element in terms of coming out of the crisis what we're recognizing from the crisis is that our attitudes and our preferences as customers as employees as societies are changing a lot the ways in which

We're working the way in which were communicating is the form that we're doing now is changing what we're going to be looking for going forward we may not be spending so much time getting on planes we may be spending more time

Communicating doing business with each other through these types of medium now that poses serious threats to businesses and so far as it means that in some cases they might find the rug being pulled from under their feet but it also

Creates opportunities and the question is how should companies realize what those opportunities are that's exactly where the purpose of a company in terms of it being its North Star is so important because it helps to identify

What are the areas where it is best placed to really exploit those opportunities going forward and where it should laughs will be focusing its activities and as part of that the building of the company requires it to

Identify acquisitions that have because it's going to often involve shifting from things that they're doing at the moment to doing different things going forward so for example in terms of this type of communication it means that we

Are going to need to be able to manage this form of doing business at distance better and we may find it useful to acquire certain types of companies that have expertise for example in a university having expertise in terms of

How does it present things in this sort of web form well in some cases that's going to involve acquiring that type of that expertise and buying it in so purpose is going to be a key factor strategy the

Relationship between purpose and strategy is the purpose over up is the overarching element of strategy strategy is the relatively short term three to five year or so implementation of that longer term purpose so it's rare it's

Very relevant to the implementation but the driving factor should be the purpose great so as we're coming up to the end of the session do we want to take a look at your poll results please do yeah you know it's looks as if the view is that

Financial buyers will increase slightly relative to strategic buyers and some people believe that they're going to increase significantly so the strong message to come out of this is that financial buyers are going to expand

Relatively relative to strategic buyers so that's a that's a striking result let's have the next one please and there's a very strong view that financial buyers will in no way diminish the previous one for natural buyers will

Increase significantly relative to strategic buyers I thought there was another question on ESG what's happened to that one what one of the quick I think the title of those slides got slightly mixed up I think the second one

Should have been that ESG considerations will increase or decrease well we're trying to sort that out afterwards and we'll put up the right slide title as often so anyway I think that we're pretty much out of time so

Thank you very much indeed for having joined this this is the last in the series of leadership in extraordinary times we're going to take a break now for the summer and then we're going to come back in the autumn with a with a

New series we hope that you've enjoyed the series very grateful to you for having joined this one hope you found it useful and look forward to engaging with you in the autumn thank you very much indeed

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