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Would the next wave in M&A trigger a tsunami of opportunities for angels?

Clay court = Nadal, period. 2013 was an exciting year as I visited the majestic Rolland Garros for the first time. And what better than watch the clay king carve his name on the board of honor, his 12th Grand Slam title? I have admired Nadal for his mental strength, his power, his patience and not to forget his incredibly powerful and viciously spinning cross-court forehand. He plays to his strengths and gets his opponents run for their ball!

Off the court and in the game of M&A, in recent years, I have seen businesses begin to play to their strengths. There is an increased focus on core business by carving out other unrelated or underperforming non-core revenue streams/ lines of business. We have recognised six different waves in M&A starting from 1897 as Donald DePamphilis puts it in his book on M &A.

U.S. Historical Merger Waves and Type of M&A Activity

Source: Mergers and Acquisitions by Donald DePamphilis

In my view, this shedding of non-core lines of business is the next wave in M&A. This appears to draw some of the traits from the 4th wave witnessed between 1981 and 1989. During the 4th wave conglomerates began to divest unrelated acquisitions made in the 1960s and early 1970s. To quantify these divestments almost 60% of acquisitions made outside the acquirer’s main line of business between 1970 and 1982 were sold by 1989.

There is enough evidence, across sectors, to suggest that this 7th wave has already started, if not formally recognised yet. To name a few,

Angels may want to bear this upcoming trend in mind while investing in start-ups. During the next few years (based on a wave duration of at least 4 years from history) this increased focus on core business will demand new and innovative solutions to help organisations battle competition. An angel’s aspiration is to have a successful exit over a 4 – 6 year horizon. It may be worthwhile considering if the start-ups they are planning to invest in, provide solutions (For e.g. reducing the timeframe process new mortgage applications) to address one or more of the business objectives (sample) listed below, specifically within the core business. 

  • Brand differentiation in the market;
  • Increased customer reach/ engagement;
  • Expansion of regional footprint;
  • Improvement in top line;
  • Reduction of  go to market timeframe; and
  • Reduction of overall operational expenditure

As this wave evolves, organisations will tend to invest more in both scouting for and acquiring such start-ups, offering angels the nature of exit they all wish for.

I envisage this wave spurring a tsunami of opportunities for angels in the next few years and I am getting reading to swim with the tide. Are you?
- Prem
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