When it comes to behind-the-scenes articles and interviews, I think we all tend to focus on musicians, artists, and celebrities. We rarely take the time to go looking for coverage on the ins and outs of the world of business. We hear certain business terms on the news all the time, then fail to research those terms. These tend to be terms like ‘buyout,’ ‘controlling interest,’ or ‘IPO.’
We won’t be able to do a comprehensive business primer, but we can give a wide-reaching introduction by sharing our recent conversation with mergers and acquisitions (commonly referred to as M&A) expert Saurabh Rajwade.
Rajwade works as an investment banker with a reputed Wall Street bank, analyzing M&A within the technology sector. He’s served as a consultant with regards to major buyouts, including a long list of international clients. His expertise on the subject has made him a coveted guest for interviews and news segments surrounding headline-grabbing sales.
But before we jump into the deep end, we will include this helpful simplification of what analysts in M&A maintain as their goals, to be kept in mind at all times, even during the most complicated deals.
“We help companies to develop and provide better products to the customers and the highest possible profits to the investor. We help the clients to raise money and make their companies better competitors in the market.”
When done right, a merger or acquisition can serve as a stimulant to the health of a company, with respect to nearly every aspect of the business. To use a well-worn pop culture reference, it’s like Neo uploading new software to his brain in ‘The Matrix’ to improve his combat skills. An effective merger makes the parent company stronger, more dynamic, more versatile, more competitive. It unlocks new abilities, makes way for groundbreaking innovations. And with that in mind, let’s follow Rajwade farther down the rabbit hole.
Given Current Artisan’s vested interest in contemporary entertainment, our discussion began with a few questions about recent show business buyouts and what exactly those might mean for us, the consumers. After all, there have been a lot of them in recent years, and they could potentially reshape the entire industry.
“The recent string of buyouts in the entertainment industry are a result of changing dynamics in the market, with new players such as Amazon and Netflix controlling the majority of supply chain from content to delivery. The recent mergers are examples of both consolidation in the industry (Comcast buying Sky) as well as new entrants and players capturing part of the supply chain to derive more value and retain customers (AT&T buying Time Warner and DirecTV). I believe that M&A will be strong in the media and video segment as incumbents try to acquire new technologies and gain market share.”
So in any of these deals, how does each company know that it’s made the right move? After all, both sides need to agree completely before the sale goes through, and each side has its own group of experts analyzing the potential consequences of each possible decision. And that analysis is the bulk of Rajwade’s work. Like the headline says, it involves taking everything the company knows already, based on data and precedent, then feeding that information into predictive models that aim to predict the future, as logically as possible. For some specifics, I’ll let Rajwade explain his very first step of the process.
“The first step while assessing a potential merger depends on a few factors. Senior bankers leading the deal, whether it’s a sell-side or buy-side and what stage of the process they’re in. On a sell-side, the first step it to create targeted marketing material for the client to approach potential buyers, both strategic and sponsors. On a buy-side, the first few steps involve standalone valuation of the target and potential for cost and revenue synergies.”
As you can tell, it’s a highly technical process, one that makes use of countless ancillary skills and scenarios. In addition to understanding how mergers tend to shake out, you need to also consider the types of businesses involved, how one industry can combine with another, the kinds of resources each requires, the future of each of those resources, etc.
“As an investment banker you have to understand the basics of finance and valuation and also focus on the business model of the company you are analyzing. As a banker you present all the strategic options to the client. You develop a great work ethic in banking as you are working long hours and need to make sure that the team is at its most productive, even during 100-hour weeks.”
And as if it wasn’t complicated enough already, throwing international clients into the mix just adds another layer for consideration.
“International clients present a different challenge in an M&A context. The challenge is to convey the right message to the client. I enjoy working with international clients as it provides an opportunity to understand business from a different perspective, but it can also pose a challenge if the client and teams are in different time zones, for example.”
Does it always go well? Absolutely not. Rajwade described a particular deal that did not end up contributing to a competitive advantage, a deal that I will remind our readers Rajwade had nothing to do with, but which served as an excellent example of what it looks like when things go wrong.
“One acquisition I think was a bad move was Microsoft’s acquisition of Nokia. Microsoft had earlier failed in launching a successful product in the fast-growing mobile market. It appeared to be a purchase made in desperation. It lacked the strategy to penetrate the mobile market. I believe MS could have hired the talent internally and acquired the necessary patents on their own.”
It’s for reasons like these that M&A analysts will always be crucial to successful deals. And now the next time you hear about a major buyout you’ll know a bit more about what went on behind the scenes, and have a better shot at predicting how the merger will pan out in years to come. Think of it as sports for the business world, where one team can absorb another, taking on their strengths as well as their problems.