2017 may just be the year of mergers and acquisitions

Mergers and acquisitions (M&A) are a natural part of civilization and throughout history the greatest empires have been created from a combination of communities, resources and cultures for the greater good, whether it was achieved peacefully or through war. Its no surprise, however, that over the years we have seen the same empires crumble and end up divided into individual nation states with their own interests that creates a balance of power that appears to govern our ambitions.

Even though mergers are natural it seems that the skills needed to orchestrate them successfully don’t come naturally to us and we must spend a considerable amount of study and effort to establish them. We need the determination of Genghis Khan, the command of Augustus Caesar, the insight of Socrates, the precision of Carl von Clausewitz, the cunning of Niccolo Machiavelli, as well as a good portion of luck on our side.

In 2017 a number of M&A projects can be expected from various sectors in Kenya. The first, of course, is the combination of political parties ahead of the next general elections and indeed these have become a normality in our political history. Every new merger is touted to be the mother-of-all parties, raising expectations and riding the wave of excitement into the elections battleground. A notable outcome of these integration initiatives is the public fallout that ensues when those who get the short end of the stick protest and jump ship, though our leaders have now put clauses into law that will limit the options of disgruntled elements.

With the new law capping interest rates and the recent increase in the capital requirement which support a concentration policy in the banking sector, it is clear that the policy makers are encouraging M&A in the coming years. The results are projected to provide better returns for shareholders by reducing the number of competitors and increasing the efficiency of acquiring and maintaining customers. Banking clients will also be happy because of low lending and service rates expected from consolidation.

Another set of M&A initiatives expected are in the media industry driven by the fragmentation that led to stagnant advertising revenues in individual media houses. The efficiencies that can be created by combining resources, talent and getting better deals on content through bulk buying are what the managers need in order to maintain and grow their profitability. Usually acquisitions are preceded by high returns in a sector giving the potential bidders deep pockets and the ability to buyout their competitors. The lack of high returns in the past few years indicates that mergers rather than acquisitions would be the likely outcome. Alternatively venture capitalists and other investors awash with cash may inject the capital for making large or multiple buys in the market.

Eleven years ago I predicted that the advertising and PR industry was ready for mergers and acquisitions but because of the raw ambition and unmatched appetite for risk displayed by ScanGroup we only saw acquisitions when they chomped up established advertising agency brands in the region. Since then numerous ad agency startups have been launched by senior executives who left their plum corporate jobs and made the the leap into entrepreneurship, acquiring impressive client portfolios.

Subsequently a number of digital ad agencies have also been set up mostly by techies creating green-field operations in order to benefit from the shift of advertising shillings to new media. The resulting fragmentation in agency income will eventually lead to consolidation and we will witness the advent of the M&A season that is in the cards.

Less than half of all corporate M&A projects ever reach their promised strategic and performance goals, yet the significant amounts paid by companies for M&A are growing by leaps and bounds. The successful ones lay emphasis on the integration manager and his cross functional team to deliver a combined high performance operation within a set time, allowing the other mangers to continue doing their job — meeting customers expectations.

The phrase ‘our assets wear shoes’ refers to the people-oriented nature of service companies and their reliance on relationships and unique skills of individuals. Be cautious about unravelling the fabric that holds people together, and ensure to work on creating a shared vision and common values that have meaning to the individuals in the team and that are relevant to their customers. Remember to inject three Cs of M&A; clarity, conflict resolution and consensus building.

M&A offers opportunities from a combined force with improved efficiencies and thus bigger benefits for the shareholders in the long run. 2017 is bound to be the start of an active M&A season and if you are part of one may God bless the vision on you mind, the courage in your heart and the work of your hands as you cast your gaze to the future.


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