STRATEGIC MOTIVATIONS IN THE M&A PROCESS

There are several strategic motivations, both of the buyer and the seller, that culminate in operations of Mergers and Acquisitions (M&A). The buyer may be interested in diversifying their offer by acquiring new products or services, shortening the process of entering a new geographical region, or even having access to a portfolio of clients from a new segment. The seller's motivations, on the other hand, include the demand for more resources than they are able to capture for the expansion of operations, the improvement of their financial indicators, or simply the diversification of the risk of concentrating almost all of their assets in a single sector. Another important strategic motivation is the capture of synergies, aimed at operational and financial efficiency, which can occur through the reduction of costs, the extinction of redundant corporate areas, and the increase of revenue through cross-product sales (cross-selling) or optimization of hitherto underutilized assets. 3G Capital, led by businessmen Jorge Paulo Lemann, Marcel Telles and Carlos Sicupira, became known worldwide as a specialist in strategic acquisitions motivated by the capture of operational and financial synergies. Since 1989, with the acquisition of the Brahma brewery, the trio and its various executives have followed the same Modus operandi in its acquisitions: purchase of well-known consumer brands, great discipline with costs and expenses, reduction of redundant functions, and culture based on meritocracy. This methodology, simple to understand but extremely difficult to execute, increases efficiency for the acquired company and, consequently, expands margins and generates cash for shareholders. Among the various companies acquired according to Modus operandi described, the most prominent are the acquisitions made in the food sector: Burguer King (2010), Tim Hortons (2014), Popeyes (2017), Heinz (2013) and Kraft Foods (2015). With the combination of the last two companies mentioned, 3G Capital now controls the 3rd largest food conglomerate in North America, the 5th largest in the world. Second report From the newspaper Época Negócios, on 30/04/2018, during the annual conference of the Milken Institute in Los Angeles, USA, Lemann took the opportunity to express some thoughts about the business model adopted by 3G Capital. Speaking about the new disruptive technologies being developed and increasingly being used by consumers, Lemann considered himself a “scared dinosaur”, used to a business environment in which the focus on efficiency is highly likely to generate good results. Knowing the history of 3G Capital, how to explain Jorge Paulo Lemann's statement, in which he compares himself to a “scared dinosaur”? The answer essentially involves two aspects: change in consumer behavior and the growing proliferation of new technologies. As pointed out by Lemann himself, customers today have access to hundreds of new brands on supermarket shelves. In addition, many customers no longer go to supermarkets, making their purchases through Apps In your smartphones. New technologies have also changed the labor market, increasing the turnover of company employees, making it difficult for organizations to retain knowledge. In this new and more dynamic business environment, 3G Capital's old M&A motivations (reducing costs and increasing efficiency) do not achieve the same results as before. The dynamism of today's world requires an additional ingredient: it is also necessary to innovate. The need for innovation also has an impact on the M&A market, where there is an increasing interest of investors in companies with a vocation for research, development and innovation (RD&I). In other words, many transactions are motivated by increasing the capacity to innovate in a given segment. In view of this context, 3G Capital has been changing its way of doing M&A. In the beer sector, for example, the focus has been on the acquisition of small craft beer producers, who have, as their main strategic asset, their capacity for innovation. A recent example is the purchase of the Wals brewery, which included the maintenance of the recipes for craft beers produced by the Minas Gerais brewery — which limits the implementation of cost-reduction measures — and also the hiring of the main partners for the Bohemia innovation area (a company controlled by 3G Capital). Faced with the challenging scenario, 3G Capital's growth strategy has changed little, and is still based on the acquisition of companies. Noteworthy, however, is the change in the profile of the acquired companies, now aligned with the motivation of the transactions: innovation. Although synergy gains are still evident in most mergers and acquisitions, it is important that other strategic motivations, such as the capacity for innovation, are the subject of analysis and discussion within the M&A process, since the capture of synergies, which is still valuable, has become more difficult to achieve due to changes in the dynamics of the business environment. Article written by Matheus Rigueira - Associate of FC PartnersGo to our site: http://www.fcpartners.com.br/