In This Article
- Exhibit 1: Strategic deals by Asia's financial institutions produce lower returns than deals by principal investors do.
- Exhibit 2: As much as 46 percent of the value in acquisitions by principal investors comes from improving the earnings of the companies they invest in.
- Exhibit 3: Principal investors were able to put their controlling stakes to better use than financial institutions were.
Audio is available for this article.
Compared with Europe and the United States, Asia emerged from the global downturn a winner, with its economies continuing to post higher growth rates and its banks suffering far less damage from the credit crisis. But if Asia’s financial institutions thought that the region’s good fortunes were sufficient to provide a competitive edge, they ought to think again. When it comes to M&A, for example, acquisitions by the region’s banks have significantly underperformed those by what we call principal investors—a group that includes private-equity firms and sovereign-wealth funds—even in a rapidly growing market.
That is among the findings of a recent McKinsey analysis of financial-sector M&A in Asia.1 The study found that acquisitions by principal investors generate a median annual internal rate of return (IRR) of 22 percent, compared with –7 percent for strategic investors. This finding holds true for deals of similar sizes, across time and across Asian countries—before, during, and after the global financial crisis.