By Gabriel Silva, Partner at Acorn.
As we dive into the world of mergers and acquisitions (M&A), it becomes essential to understand the different types of transactions, and today we will talk about scale deals and scope deals.
Scale deals are transactions in which one company acquires another in the same sector in order to increase its scale of operations, usually to achieve economies of scale or neutralize competition.
On the other hand, scope deals can be defined as the acquisition of one company by another from a different sector, even if in similar horizontals, aiming to expand its market reach or product portfolio, leveraging new capabilities or technologies.
Scope deals that are based on the expansion of potential markets and that add new technologies will structurally be at the center of mergers and acquisitions (M&A) strategies in the coming years.
This type of transaction is a growth strategy widely chosen by companies, as it makes them part of a technological evolution that helps them become more effective and competitive, especially in a scenario of consolidation and increasing competition.
The best way to maximize the success of these transactions is to choose companies that expand their portfolio but that, nevertheless, remain close to their core competencies, have cultural similarity, and for which a realistic integration plan is drawn up.
“The continued interest of strategic and financial buyers in the technology sector, and the proven effectiveness of mergers and acquisitions strategies as a pillar of growth and, above all, of positioning evolution, will certainly make scope deals continue to have an evolving and important role in the M&A landscape in the coming years.” says Gabriel Silva.
Over the past 36 months, Brazil has experienced a substantial wave of M&A, with a notable evolution in scope deals. This increase can be attributed to companies’ need to diversify their offerings and leverage emerging technologies to remain competitive.
It is worth noting that scale deals still remain extremely relevant, especially in traditional industries, where economies of scale and consolidation are essential for growth and evolution. These deals tend to be prevalent in sectors such as retail and manufacturing, where there is operational synergy and efficiency is crucial.
Scope deals vs. Scale deals:
Is your company prepared for a SCOPE DEAL process?
Check out some tips and questions from Acorn:
BUY SIDE
- What are the opportunities for evolution and what is on your company’s priority list in terms of product?
- Is it possible to develop these capabilities internally, or is it a good time to develop a thesis for M&A, given the maturity of your institution?
- Are there assets in the market that would contribute to your strategy of positioning evolution and offering new products and solutions to your clients?
- What synergies could be expected and what are the integration challenges?
SELL SIDE
- What are my core competencies and competitive differentiators?
- Are my solutions easily integrable?
- Are my team and management tools prepared for an M&A move?
- Which industries and segments might our company be interesting to?
- In a scope deal, new challenges may be put on the table: which transaction am I looking for at the moment? A merger? A sale? If so, with what structure? Would a price component tied to future performance be of interest to capture part of the future growth?
Acorn Advisory is an M&A advisory firm, a leader in the technology market in Brazil, with extensive experience in negotiations, including numerous scope deals. Our team qualifies which investors will be contacted and which aspects of your business should be highlighted for each profile. We have extensive relationships with institutional investors, positioning ourselves as a professional and independent advisory firm aiming to maximize asset value and preserve the legacy of each company.