There’s a moment in the original edition of The Hobbit by J.R.R.Tolkien where Bilbo and his traveling companions are moving through the mountains, and they see giants hurling rocks at each other, changing the shape of the mountains themselves.
This image may be illustrative when discussing the contemporary technology sector. Competition is fierce and largely dominated by a handful of enormous companies, such as Amazon, Facebook, and Google.
there are many instances where large companies opt to acquire prospective competitors instead of initiating corporate warfare.
Making the Most Informed Decision Possible
Mergers and Acquisitions is a complex field, and investment bankers, in particular, are key players in the lead-up to deals.
Saurabh Rajwade is an expert-level investment banker who focuses on M&A within the technology industry.
As he discussed during our interview, investment bankers such as himself are tasked with analyzing numerous conditions and factors that could affect the value of a given company or contribute to potential risks.
The ultimate goal, of course, is to find solutions that will sate everyone involved in the transaction. If all goes well, two or more companies are combined, leaving a much more powerful company in their wake.
When speaking with Rajwade, we dug a bit deeper to learn more about the research and critical thinking that goes into analyzing proposed transactions and how M&A is having a profound effect on multiple industries.
What are some red flags that signal an acquisition may not be a good idea?
To understand red flags, first we need to look at the rationale behind an acquisition. An acquirer can have multiple reasons for an acquisition such as gaining access to a customer base or new market, acquiring competing technology or acquire an asset for its operations and team, et cetera.
In an acquisition, the most critical element is to analyze and present accurate information to all parties. Any mismatch in financials or uncovered future liabilities are some red flags that might suggest that an acquisition might not be a good idea.
When working on Samsonite’s purchase of eBags, how were you able to determine the deal would be a success?
It is usually tough to determine if the deal will be a success. Two factors that help create a successful deal are if the seller has received any inbound offers, and while running a broad process, multiple parties have provided indications of interest at a desirable valuation.
As a banker, you need to help run an efficient process and try to get the best outcome for your client.
How do you think recent M&A has affected the future of the entertainment industry?
Although my experience in working on M&A transactions in the entertainment industry is limited, I think the entertainment and media industry is going through a consolidation phase as new entrants with disruptive technology are changing the industry landscape.
Recent acquisitions such as AT&T’s acquisition of Time Warner and Comcast’s acquisition of Sky are clear indications of consolidation.
On the other hand, Netflix, Amazon, and Apple are all investing billions of dollars to develop original content and compete with the studios and distributors for the market share.
What are an M&A analyst’s most powerful tools for assessing proposed transactions?
The most powerful tools for assessing the proposed transactions are industry knowledge and proficiency in finance and accounting.
Have you noticed any major trends among company leaders when it comes to a desire to be bought out by a larger company?
I wouldn’t call this a trend, but I have observed that the company leaders often want to be bought out by bigger companies to gain access to capital to grow their business. Another reason may be to get access to a larger sales force that can help them scale both nationally and in international markets.
Do you feel that you are constantly learning new things through the course of your work?
As an investment banker, you develop a broad toolset that you can apply to understand almost any business. You study the business model of various companies and understand the basics of finance and valuation.
As a banker, you present all the strategic options to the client: acquire, sale, merge, minority investment, IPO et cetera. Every process, every client is different and you are constantly learning new things, which helps make it a highly satisfying career.