Companies increasingly are using acquisitions to buy new technological skills as a way of boosting their top-line growth, according to a report by Bain & Co.
Mergers and acquisitions often fall into two categories. In the first, which Bain calls “scope deals,” companies seek new capabilities, access to new markets or other complementary services. In the second, which the consulting firm terms “scale deals,” companies aim to increase their market share in a certain industry.
Fifty-eight percent of global transactions with deal values of more than $1 billion were considered scope deals, according to the Boston-based consulting firm. The figure represents a seven percentage point increase from 2018, when scope deals outweighed scale deals for the first time since at least 2015.
The value of corporate deals announced globally reached $3.4 trillion, matching 2018’s total, the firm said. Some companies exercised caution in deal making amid uncertainty stemming from U.S.-China trade tensions and the U.K.’s planned departure from the European Union.
Global Payments Inc.’s
$21.5 billion merger with Total System Services Inc. was one of several financial-technology transactions in 2019 that saw card payment-processing companies strike deals for merchant-side capabilities. Through the deal, Global Payments gained more insight into digital payment trends by accessing Total System Services’ issuer- and consumer-focused divisions.
“Those are two businesses that Global Payments historically has not operated in,” said Global Payments President and Chief Operating Officer
who served as finance chief before the merger.
Other fintech transactions—including
$22 billion purchase of First Data Corp. and
$35 billion acquisition of Worldpay Inc.—created two-sided platforms servicing both merchants and financial institutions, with the objective of monetizing both ends, said Moshe Katri, an analyst at Wedbush Securities Inc.
Scale deals decreased last year, in part because companies in heavily consolidated industries encountered regulatory roadblocks.
Governments exercised stronger scrutiny of deals on national security grounds, Les Baird, the head of Bain’s global M&A and corporate finance practices and one of the report’s authors, said in an interview.
Seventy-four percent of deals in the health-care industry were scope deals, the highest proportion of any industry studied, according to Bain. Some of those companies wanted to acquire therapeutic capabilities, according to the report.
Vertex Pharmaceuticals Inc.,
a Boston-based biopharmaceutical company, sought to build out its gene-editing services with its acquisition of Exonics Therapeutics Inc. and its purchase of the rights to Crispr Therapeutics AG’s intellectual property.
Sometimes in acquiring capabilities, companies need to do more than just buy a business. “Gene editing is very complicated—you need to not only acquire a business but also to acquire the IP you’re interested in,” Vertex Chief Executive Jeffrey Leiden said in an interview.
In the year ahead, finance executives are expected to continue capitalizing on low interest rates and rising stock prices to raise capital for acquisitions.
Favorable capital conditions are expected to keep the volume of scope deals steady or growing in the near term, Mr. Baird said. Scale deals tend to result in more-immediate cost savings, which become particularly attractive in a tight economic environment, he said.
“If we saw a deep recession, we might see the mix shift a little bit back towards scale deals,” Mr. Baird said. “But I think this underlying trend of buying capabilities is here to stay.”
Write to Mark Maurer at [email protected]
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