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July 1, 2024

Executing Transformative M&A to Change Business Models

Transformative M&A is becoming increasingly critical in today's business landscape, especially for industries facing significant regulatory and market pressures. In this article, we will discuss how to execute transformative M&A to change business models, featuring Tobias Gwisdalla, Head of Group M&A at GEA Group.

“Large transformative M&A will dominate future deals, especially in energy-intensive industries like chemical, automotive, and steel. These industries face challenges that require them to rethink and reinvent their business models.” - Tobias Gwisdalla

Understanding the industry and regulatory framework

The first step in executing a transformative M&A is to deeply understand both the industry and its regulatory framework. This is crucial because industries such as chemicals, automotive, and energy face intense regulatory pressures that influence their business models. 

Strategic decision making

Companies must decide whether to invest capital in transforming existing operations or to divest and reallocate resources. Tobias shared a story about a transformative M&A deal he worked on at a large German utility company. 

The company faced financial problems due to new laws requiring them to stop using coal for power. To fix this, their six public shareholders had to sell their stakes.

They split the company into two parts: one for traditional power and one for renewable energy. The renewable energy part attracted investors, while the traditional part needed a plan to phase out coal.

To solve this, they created a solution called "shareholding as a service." This let investors transfer the coal business to a trustee, keeping it off their books. This approach helped them manage regulations, get financing, and focus on growing their green energy business.

Transformative M&A allows companies to make strategic decisions that align with their long-term goals.

Engaging stakeholders

Successful transformative M&A requires aligning all stakeholders behind the concept. This involves gaining approval from within the company, the executive board, and the supervisory board. In Germany, they have a multi-stakeholder governance structure. Each stakeholder, from shareholders and employee representatives to politicians and banks, must be brought on board with the same message, tailored to their specific concerns and background.

Process and mechanics

Transformative M&A involves detailed process management. This includes tasks like ring fencing, transferring contracts, handling licenses, and separating data files. Companies must conduct thorough audits and prepare comprehensive documentation well in advance of meetings. 

Implementing transformative changes

Finally, implementing transformative changes requires careful planning and execution. Companies that are switching business models must ensure they have the right infrastructure to support it. For instance, an automotive suppliers moving to a subscription model. They must ensure customers flexibility in choosing features and services on a subscription basis, which can be profitable if managed correctly.

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