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Pauline BourcetManaging Consultant Frenger Consulting Services in
Are you missing the M&A boat?
UNCTAD published on 20th January 2016 its latest report showing that global FDI growth in 2015 was largely due to cross-border merger and acquisitions, which rose by an incredible 61% in 2015!
The report also notes that, in contrast, greenfield investment projects (new projects) have remained much the same in value.
Frenger Consulting has been advising Investment Promotion Agencies and Economic Development Organisations across the world on how to capitalise on M&A investment.
We have conducted ad-hoc research for a few clients demonstrating that, over the long term, acquisition projects lead to re-investments and that the re-investments following an acquisition create more jobs than the re-investments following a greenfield project!
Let’s focus on these two very important messages:
1. Acquisition projects lead to re-investment and further expansion
Contrary to common perception, the vast majority of acquisition projects actually create jobs over the long term. Unfortunately the press prefers to report on the very rare high profile cases where the buyers make large scale redundancies than the hundreds of successful acquisitions that enable the acquired companies to benefit from additional resources, invest in more projects and create a lot more jobs than what they would have been able to on their own.
In a particular European country that Frenger Consulting researched, over a 10-year period, whilst 57% of FDI projects came via greenfield/expansion, a significant 43% came via M&A and was left totally untapped by our client.
IPAs and EDOs who are servicing and supporting M&A projects have been able to claim additional successes with more jobs safeguarded or secured, higher capex and to create long lasting relationships with new international investors whilst at the same time helping their local companies to grow.
2. Expansion projects following an initial acquisition create more jobs than expansion projects following an initial greenfield project.
Frenger’s analysis for that particular territory showed that expansion projects that followed an initial acquisition created on average 73% more jobs than expansion projects that followed an initial greenfield!
At a time when large, value added greenfield projects become rarer and more difficult to identify, attract and convert, EDOs and IPAs should provide better support to the first M&A investment of a new international company in their territory, and reap the benefits of future expansions.
It is important to facilitate the identification of acquisition targets in your territory, in order to attract an initial investment and any future expansions.