End-to-End M&A Process Design:

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Thorsten Feix

End-to-End M&A
Process Design
Resilient Business Model
Innovation
End-to-End M&A Process Design
Thorsten Feix

End-to-End M&A Process

Design
Resilient Business Model Innovation
Thorsten Feix
Hochschule Augsburg
Augsburg, Bayern, Germany

ISBN 978-3-658-30288-7 ISBN 978-3-658-30289-4 (eBook)

https://doi.org/10.1007/978-3-658-30289-4

© Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2020

This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the
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The registered company address is: Abraham-Lincoln-Str. 46, 65189 Wiesbaden, Germany
Introduction

The M&A market is with a global transaction volume of USD 3–5 trillion per year,
depending on the M&A cycle, an important segment of the global capital markets.
Between 5–6% of the global market capitalization finds a new ownership driven by those
M&A activities year by year. But more or less all recent studies and research focused on
the global M&A market highlight that between 50–70% of those deals fail (NBER 2004;
Kengelbach et al. 2005; Rudnicki et al. 2019). Failure rates within corporate finance-
based studies are typically defined as either destroying shareholder value in comparison
to a defined peer-group measured by the cumulative abnormal return or underachieving
on the intended and communicated synergy targets. Therefore, to find and understand the
root causes of those failed acquisitions and mergers is of paramount interest. Several rea-
sons, like the missing fit between the acquirer’s and the target’s business model, incon-
sistent due diligence, culture clashes, unsuccessful integration efforts or simply too high
purchase prices within contested bidding processes might contribute. But in the end, the
most severe drivers of M&A failures might be disruptions and missing links between the
different parts of the underlying M&A process.
Based on this assessment, this book, on the one side, develops an End-to-End (E2E)
M&A Process Design which tries to overcome those failures. On the other side, it will
challenge the robustness of such a design with the needs of twenty-first century digi-
tal business models and innovation strategies. The E2E M&A Process Design approach
is based on in-depth scientific research and co-operations with leading universities.
Besides, it was also stress-tested and verified in numerous international M&A consult-
ing projects, discussions with corporate development and M&A teams, as well as M&A
experts, like investment banks, Big 4 transaction managers and strategy consultants.
The target group of this M&A book is manifold. On the scientific side, courses and
lectures on advanced bachelor levels, intensive lectures focusing on corporate finance,
M&A and related fields, as well as master and MBA programs with a touchpoint on
M&A, corporate finance, corporate strategy or investment banking might find the book
useful. On the practitioner side, advisors in investment banking, strategy consulting and
M&A transaction management might be interested in the book. Last not least, corporate

v
vi Introduction

decision makers and in-house M&A, corporate strategy, corporate finance, controlling
and legal teams are typically highly interested groups.
This book will develop an innovative End-to-End (E2E) design for M&A processes
to address the following key questions, which are fundamental to improve M&A success
rates:

–  How to invent a robust E2E M&A Process Design which avoids the typical pitfalls
of M&A projects? What should be the modules of such an integrated approach? How
to take care of the crucial linkages and feedback mechanisms between the different
parts of such a highly complex process model?
–  How could twenty-first century digital tools and processes be applied within this
given M&A Process Design framework to increase efficiency, quality, speed and
robustness of M&A projects?
–  How could transactions be designed to innovate business models, create or renew
competitive advantage and lever enterprise, or more precisely, equity value? How to
embed M&A in the wider toolset of corporate portfolio and business strategies?
–  What are vice versa the challenges and impacts of digital business models for M&A
as a strategy tool and for the M&A Process Design?

These questions will lead us to a digital E2E M&A Process Design as a general frame-
work for M&A projects. Such a design has to be adjusted with respect to the specific
needs of a given corporate strategy, Business Design and M&A Strategy to provide a
tailor-made approach. The storyline and flow of thoughts, including the topics of each of
the following chapters of the M&A Process Design, are summarized in Fig. 1:

Seng the stage: An digital End-to-End M&A Process Design

Chapter 1 • The seventh merger wave: The blended challenge of Innovaon versus resilience
• A first overview of an End-to-End M&A Process Design
• The use of digital processes and tools to improve M&A processes and success
• The challenges of resilient digital business models and the role model of M&A

Part II: The modules of the digital End-to-End M&A Process Design
Chapter 2 Chapter 3 Chapter 4
Embedded Transacon Integraon
M&A Strategy Management Management
Chapter 5
Synergy
Management
Chapter 6
M&A-Project Management
& Governance

Fig. 1 Structure of the book and flow of thoughts

Introduction vii

–  The first chapter of the book will start with the assessment of the long-term and the
most recent developments on the global M&A market. Distinct market indicators
highlight that we are in the later stage of the seventh global merger wave, which is
driven on the one side by business model innovations, digital disruptions and think-
ing in new ecosystems instead of linear competitive environments. On the other
side, the glut of liquidity on the global equity and debt markets supported in the
years before the covid-19 crises financially the flow of mergers and acquisitions. To
address the needs of this challenging environment a tailored M&A Process Design
will be introduced.

The E2E M&A Process Design is based upon five modules: the first three, the pri-
mary M&A process modules, are the Embedded M&A Strategy, the Transaction
Management and the Integration Management. These primary M&A process modules
will be supplemented by two support M&A processes, the Synergy Management and
the M&A Project Management & Governance.
Digital processes and tools, like artificial intelligence, analytics, big data, block-
chains and others offer significant potential to improve M&A processes. Given the M&A
Process Design, a whole new set of M&A tools are introduced to increase the effec-
tiveness and efficiency of M&A projects in the 20s. Further more, the role of M&A for
innovations in digital business models and, vice versa, how digital business models chal-
lenge M&A processes, will be assessed. Along the M&A Strategy digital business mod-
els demand a wider scan of potential targets within a given ecosystem. For example, an
Ecosystem-Scan as a tool for the necessary 360-degree, in-depth view on and assess-
ment of a company’s corporate environment might be applied. A second, more holistic
tool for corporate development and value creation is the Business Model Innovation
(BMI)-Matrix. By comparing and evaluating acquisitions, mergers, joint ventures, incu-
bators, accelerators and business model innovation approaches, the best option could
be chosen. Another digital business model challenge is the valuation of digital targets
and platform strategies within the Transaction Management. A Reversed Discounted
Cashflow Model (DCF) might offer here new insights.
Chapters two through six present the specific modules of the M&A Process Design
in detail and will highlight the importance of an integrated approach in the sense of an
E2E process. Especially at the interfaces of the different M&A modules, for example
at the hand-over between the modules Transaction and Integration Management, many
M&A projects fail. These interphase problems of M&A projects are also to be found
between individual processes within a given module, for example within the Transaction
Management between the Due Diligence, the valuation and the negotiation part. Besides,
a dedicated focus will be on selected, newer topics with lasting impact on the success of
viii Introduction

M&A projects, like the Due Diligence for digital targets and intangible assets, cultural
integration issues, the tracking and controlling of the integration progress, the manage-
ment of synergies or the design of a professional M&A project house and lasting tacit
M&A-capabilities:

–  In Chap. 2 the Embedded M&A Strategy module sets the stage for a M&A pro-
ject: The first critical milestone is here the review of the corporate and the business
unit strategies. Any M&A project should pay in double-sided: On the one-side, M&A
projects have to contribute to the corporate and business strategy of the acquirer and,
on the other side, it has to be financially assured that any transaction will lever share-
holder value. Based on these guidelines the key pillars of such an Embedded M&A
Strategy will be defined. Besides, a special emphasis will be on the Frontloading
of Integration issues, like the Standalone Business Design Diagnostics of the target
company and the acquirer, the drafting of a Joint Business Design, as well as on the
Standalone Culture Diagnostics and the Joint Culture Design Blue Print. The E2E
M&A Process Design proposes that already within the M&A Strategy such a sketch
of the key pillars of a potential Integration Approach should be developed.
–  The second module, the Transactions Management, will be discussed in Chap. 3.
Core elements within the Transaction Management module are the Due Diligence,
the valuation of the target company or merger with and without synergies, the acqui-
sition financing, the negotiation as well as the drafting of a share purchase, asset pur-
chase or merger agreement and the Purchase Price Allocation (PPA). Last not least
the Blue Print of the Joint Business and Culture Design must be stress-tested along
the Transaction Management phase. This book will focus foremost on the latter
issues, as well as valuation and Due Diligence topics.1
–  Chap. 4 provides a detailed framework for the Integration Management. The
Integration Approach Blue Print has to be detailed in an Integration Strategy.
Additionally, the freezing of the Joint Business and Culture Design has to be assured.
Thereafter, the dedicated Integration Masterplan will be designed and executed in
four waves, short-, mid- and long-term as well as post-transaction to lever strategic
and value upsides beyond the first-hand integration process. In parallel, the integra-
tion success has to be tracked and controlled, as well as learning-loops initiated.
–  M&A projects only generate value, if the realised synergies overcompensate
the agreed upon and finally paid acquisition premium. Therefore, the Synergy
Management, which will be described in Chap. 5, is especially important for
the value creation of an M&A project. The M&A Process Design understands the
Synergy Management, in line with Michael Porter’s value chain idea, as a sup-
plementary process, which runs in parallel, meaning End-to-End, to the three

1The second edition intends to cover all parts of the Transaction Management.
Introduction ix

primary M&A processes, the M&A Strategy, the Transaction and the Integration
Management.
–  In the end, any M&A process has project characteristics, having a defined starting—
latest at the signing of the nondisclosure agreement—and end point—the closing of
the Integration or post-mortem report-. In this sense, a professional M&A Project
Management & Governance is, as a second supplementary process, mandatory
for a seamless E2E M&A Process Design. An M&A and Integration Project House
might serve as a capability and knowledge platform throughout the whole acquisition
process and might scale M&A Project Management and Governance tools, as well as
M&A specific, often tacit knowledge. This will be covered in Chap. 6.

The entire book stresses the idea that an M&A Process Design has to be tailored accord-
ing to the needs of a specific M&A Strategy, Business Design and ecosystem. The
chosen pattern will be defined as a tailor-made E2E M&A Process Design: A M&A
Process Design of a multiple acquirer, for example in the sense of a “pearls-of-string”
acquisition strategy, is obviously quite different as one for a company which realizes
only from time to time a dedicated M&A project or from one of a Private Equity (PE)
player. Accordingly, the M&A Process Design needs to be tailor-made.
Contents

1 End-to-End (E2E) M&A Process Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.1 The 7th Merger Wave: The Age of Digital Disruption and
Business Model Innovation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 End-to-End M&A Process Design for Digital Times . . . . . . . . . . . . . . . . . 7
1.2.1 Overview of the End-to-End M&A Process Design . . . . . . . . . . . . 7
1.2.2 Modules of the End-to-End M&A Process Design. . . . . . . . . . . . . 9
1.2.3 Interrelations between the M&A Modules:
An End-to-End View . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
1.3 Digital Touch Points of the End-to-End M&A Process Design. . . . . . . . . . 20
1.3.1 Digital M&A Processes and Tools. . . . . . . . . . . . . . . . . . . . . . . . . . 22
1.3.2 The Impact of Digital Business Models on M&A and
Vice Versa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
2 Embedded M&A Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.1 Reframing of Corporate Portfolio and Strategic
Business Unit Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.2 M&A for Strategy Development on Corporate Portfolio and
Strategic Business Unit Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.2.1 M&A for Corporate Strategy and Portfolio Management. . . . . . . . 36
2.2.2 M&A for Business Unit Strategies and
Competitive Advantage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
2.3 Purchase Price, Synergies and Shareholder Value. . . . . . . . . . . . . . . . . . . . 58
2.3.1 M&A Value Added Versus Dilution. . . . . . . . . . . . . . . . . . . . . . . . . 58
2.3.2 Synergies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
2.3.3 The Tao of Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
2.4 Embedded M&A Strategy Design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

xi
xii Contents

2.5 M&A Target Profiling and Pipeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

2.5.1 Criteria for Target Profiling and Target Scorecards. . . . . . . . . . . . . 65
2.5.2 Assessment of the Fit Diamond. . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
2.5.3 The Process of Screening and Target Pipelining. . . . . . . . . . . . . . . 72
2.6 Frontloading of Integration Approach Blueprint. . . . . . . . . . . . . . . . . . . . . 73
2.6.1 Standalone Business Design Diagnostics and
Joint Business Design Blueprint . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
2.6.2 Standalone Culture Design Diagnostics and
Joint Culture Design Blueprint . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
2.7 Embedded M&A Strategy for Digital Targets. . . . . . . . . . . . . . . . . . . . . . . 99
2.8 Summary of Embedded M&A Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
2.8.1 Critical Cross-Checks and Questions. . . . . . . . . . . . . . . . . . . . . . . . 102
2.8.2 Key Success Factors and Takeaways. . . . . . . . . . . . . . . . . . . . . . . . 103
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
3 Transaction Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
3.1 Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
3.1.1 M&A Valuation Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
3.1.2 M&A Valuation Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
3.1.3 Valuation Methods. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
3.1.4 Valuation Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
3.2 Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
3.2.1 Due Diligence Targets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
3.2.2 Due Diligence Management and Process. . . . . . . . . . . . . . . . . . . . . 144
3.2.3 Due Diligence Tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
3.2.4 Core Parts of the Due Diligence . . . . . . . . . . . . . . . . . . . . . . . . . . . 152
3.3 Blending of SCDs and SBDs and Redrafting of JCD and JBD. . . . . . . . . . 159
3.3.1 Business Design Due Diligence: Blending
of SBDs and Redrafting of JBD Blue Print. . . . . . . . . . . . . . . . . . . 159
3.3.2 Culture Design Due Diligence: Blending
of SCDs and Redrafting of JCD Blue Print. . . . . . . . . . . . . . . . . . . 162
3.3.3 Due Diligence and Verification of Integration Approach. . . . . . . . . 162
3.4 Valuation and Due Diligence of Digital Business Designs. . . . . . . . . . . . . 163
3.5 Summary of Transaction Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
3.5.1 Critical Cross-Checks and Questions
of Transaction Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
3.5.2 Key Success Factors of Transaction Management. . . . . . . . . . . . . . 169
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 170
4 Integration Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
4.1 Integration Strategy and Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
4.1.1 Integration Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
4.1.2 Integration Approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185
Contents xiii

4.2 Integration Masterplan: Planning the Transition. . . . . . . . . . . . . . . . . . . . . 197

4.2.1 Integration Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
4.2.2 Integration Masterplan Modules: Planning the
Transition to the JBD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
4.2.3 Culture Transition Program: Planning the
Transition to the JCD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 222
4.3 Transition Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
4.3.1 Integration Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225
4.3.2 Implementing the Integration Masterplan. . . . . . . . . . . . . . . . . . . . 228
4.4 Integration Monitoring, Controlling and Learning . . . . . . . . . . . . . . . . . . . 232
4.4.1 Integration Tracking and Scorecards. . . . . . . . . . . . . . . . . . . . . . . . 233
4.4.2 Integration Controlling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
4.4.3 Integrational Learning: Post Mortem Report
and Learning Platform. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
4.5 Integration Management for Digital Targets and Business Designs . . . . . . 237
4.6 Summary of Integration Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
4.6.1 Critical Cross-Checks and Questions. . . . . . . . . . . . . . . . . . . . . . . . 238
4.6.2 Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
5 Synergy Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 245
5.1 Transaction Value Added (TVA) and the Role of Synergies. . . . . . . . . . . . 250
5.2 Synergy Diagnostics and Patterns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
5.2.1 Demystifying Synergies—I: Financial Diagnostics
of Synergy Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 253
5.2.2 Demystifying Synergies—II: Joint Business Design
Diagnostics of Synergy Patterns . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
5.2.3 Valuation and Prioritization of Synergies . . . . . . . . . . . . . . . . . . . . 262
5.3 End-to-End Synergy Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
5.3.1 Synergy Management & Embedded M&A Strategy:
Synergy Diagnostics & Scaling Approach. . . . . . . . . . . . . . . . . . . . 265
5.3.2 Synergy & Transaction Management: Proof-of-Concept
of Synergy Value and Scaling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267
5.3.3 Synergy & Integration Management: Synergy
Capture—Implementation & Tracking . . . . . . . . . . . . . . . . . . . . . . 269
5.4 Synergy Management Toolbox and Synergy Capture Assessment. . . . . . . 272
5.4.1 Synergy Toolbox . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
5.4.2 Evaluating Synergy Capture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276
5.5 Synergy Management of Digital Targets and Business Designs. . . . . . . . . 277
5.6 Summary of Synergy Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279
5.6.1 Critical Cross-Checks and Questions. . . . . . . . . . . . . . . . . . . . . . . . 279
5.6.2 Summary and Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . 280
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 280
xiv Contents

6 M&A Project Management & Governance: The M&A Playbook. . . . . . . . . 283

6.1 Purpose of the M&A Playbook: End-to-End M&A
Project Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
6.1.1 End-to-End M&A Process Map. . . . . . . . . . . . . . . . . . . . . . . . . . . . 286
6.1.2 End-to-End M&A Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
6.2 M&A Playbook and End-to-End M&A Process Design. . . . . . . . . . . . . . . 289
6.2.1 Development of an Embedded M&A Strategy . . . . . . . . . . . . . . . . 289
6.2.2 Execution of the Transaction Management. . . . . . . . . . . . . . . . . . . 290
6.2.3 Managing the Integration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 291
6.3 M&A in the 20s: Management of M&A Capabilities. . . . . . . . . . . . . . . . . 294
6.3.1 M&A Capabilities in the 20s. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294
6.3.2 M&A Departments 2020+. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
6.4 M&A in the 20s: Digital Tools of the M&A Playbook. . . . . . . . . . . . . . . . 297
6.5 M&A Project Management of Digital Targets and
Business Design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
6.6 Summary M&A Project Management & Governance. . . . . . . . . . . . . . . . . 301
6.6.1 Critical Cross-Checks and Questions. . . . . . . . . . . . . . . . . . . . . . . . 301
6.6.2 Summary and Key Success Factors. . . . . . . . . . . . . . . . . . . . . . . . . 301
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302
End-to-End (E2E) M&A Process Design
1

Contents

1.1 The 7th Merger Wave: The Age of Digital Disruption and Business Model Innovation. . . 2
1.2 End-to-End M&A Process Design for Digital Times . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.2.1 Overview of the End-to-End M&A Process Design. . . . . . . . . . . . . . . . . . . . . . . . 7
1.2.2 Modules of the End-to-End M&A Process Design. . . . . . . . . . . . . . . . . . . . . . . . . 9
1.2.3 Interrelations between the M&A Modules: An End-to-End View. . . . . . . . . . . . . . 18
1.3 Digital Touch Points of the End-to-End M&A Process Design. . . . . . . . . . . . . . . . . . . . . . 20
1.3.1 Digital M&A Processes and Tools. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
1.3.2 The Impact of Digital Business Models on M&A and Vice Versa. . . . . . . . . . . . . . 26
References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Abstract
The long-term development of the global M&A market is characterized by a highly
volatile pattern and was challenged by six merger waves. Multiple financial mar-
ket assessments indicate that the global M&A market is in the midst of a new, the
seventh merger wave, which is driven by business model innovations within tech-
nology as well as traditional industries. Besides, a glut of global liquidity due to
ultra-loose monetary policies of multiple developed market central banks sup-
ports M&A financing potentials. Given this highly dynamic macro-view, a robust
E2E M&A Process Design is mandatory to assure successful mergers and acqui-
sitions. This M&A Process Design is built upon 5 modules, the Embedded M&A
Strategy, the Transaction Management, the Integration Management, the
Synergy Management and the M&A Project Management & Governance. The
E2E M&A Process Design not only addresses these five modules, but also takes care
of the crucial linkages within and between those modules. This mission-critical

© Springer Fachmedien Wiesbaden GmbH, part of Springer Nature 2020 1

T. Feix, End-to-End M&A Process Design,
https://doi.org/10.1007/978-3-658-30289-4_1
2 1 End-to-End (E2E) M&A Process Design

interdependencies of modules demand an E2E architecture. The M&A Process

Design integrates also digital challenges and opportunities: Digital tools and pro-
cesses might be used to increase the efficiency, speed, quality and robustness of
M&A processes. Additionally, M&A could be used as a corporate development tool
to design robust digital business models, resilient innovation strategies and to reshape
corporate portfolios for the needs of the 20s.

1.1 The 7th Merger Wave: The Age of Digital Disruption

and Business Model Innovation

The global M&A market is with a yearly transaction volume between USD 3–5 tril-
lion not only a significant, but also a volatile part of the global capital market. Within
the M&A community, a common understanding exists, that these ups and downs of
the global M&A market were shaped by six merger waves. Merger waves are thereby
defined as multi-year clusters of extraordinary high global merger and acquisition
activity (DePamphilis 2015, pp. 18–20; Maksimovic et al. 2013; Gugler et al. 2012)
(Fig. 1.1).

Macro view: Development and paerns of the global M&A market

• Brief summary of the six tradional merger waves and their drivers
• The 7th merger wave: its drivers and challenges

Resilient business model Global glut of

innovaon liquidity

Micro view: The E2E -M&A Process Design

Embedded Transacon Integraon
M&A Strategy Management Management
Synergy -
Management
M&A Project Management
& Governance

E2E M&A Process Design, digitalizaon and business model innovaon

+ Venturing (CVC)
Speed

Business Incubaon / Accelerators

BMI distance from core

Efficiency
E2E
M&A
M&A Alliances & Partnerships
Process
Design
Quality Joint Ventures

Minority &
Cross Shareholdings
Robustness -
Inhouse Business Model Innovaon
Short term Implementa on me Long term

Fig. 1.1 Structure and flow of thoughts of Chap. 1

1.1 The 7th Merger Wave: The Age of Digital Disruption … 3

Background Information
There are two competing schools of thought on the phenomenon of merger waves:
The theory of “external shocks” argues that merger waves occur due to significant changes in
the wider ecosystem of companies. The drivers of those changes might be redesigns of the regu-
latory environment, tectonic shifts in the macroeconomic environment like significant commodity
price increases, disruptions due to new technologies1 or the sudden appearance of new distribution
channels like the Internet. These macro-shifts in the external environment challenge corporations
to overhaul their corporate strategies and portfolios and therefore foster mergers and acquisitions
as important corporate strategy tools.
The second argumentation line is based on the theory of the “merger mania phenomenon”
and temporary corporate mis-valuations. Here the line of thought is that managers use shares of
their own company believed to be temporarily overvalued to buy perceived lower-valued firms
and assets. Further, the argument goes, management confidence is high during merger waves due
to booming capital markets, and therefore managers might use a significant proportion of debt to
finance their acquisitions.2
All in all, the external shock theory might explain the phenomenon of merger waves better than
the temporary mis-valuation theory (Garcia-Feijoo et al. 2012). Nevertheless, high liquidity on the
global debt and equity markets seems to have fueled merger activity in recent times, as the devel-
opment in the aftermath of the Global Financial Crisis (GFC) of 2008 proved.3

The Six “Traditional” Merger Waves

– The first merger wave (1897–1904)—Horizontal consolidation: Around the
turn of the last century merger and acquisition activity kicked-off. The underlying
­route-causes were new anti-trust regulations like the moderate enforcement of the
Sherman Anti-Trust Act in the US and new technology developments. This led to
mergers between and acquisitions of competitors and enforced a significant consoli-
dation process, especially in the raw material and transportation industries. Financial
turbulences due to the stock market crash in 1904 put a halt to this first merger wave.

1Carlota Perez (2018) describes from an e ­ conomic-historical point of view, that revolutionary tech-
nologies first go through a “gilded age” in line with an investment hubble that pops after a couple
of years, before entering a “golden age” of widespread development.
2For this theory to be valid two assumptions have to be met. First, that capital markets might

behave from time to time irrational. This is in line with the explanation of irrationalities by behav-
ioral economics, but is in contradiction to the traditional theory of corporate finance. The latter
proposes the efficient market hypothesis. Secondly, that the method of payment within merger
waves is more share- than cash-based, which was in contradiction to the empirical findings within
the first six merger waves.
3Another interesting fact about merger waves was highlighted by Netter et al. (2011). The corre-

lation between merger waves and external shocks is more obvious in studies which use smaller
data samples than those which use larger ones. It seems therefore, that M&A activity that includes
smaller deals and private acquirers is less sensitive and wavelike then M&A patterns observed with
only public acquires and larger deals.
4 1 End-to-End (E2E) M&A Process Design

– The second merger wave (1916–1929)—Increasing concentration: The interim

period between World War I and II and its economic boom have been the foundation
for the second merger wave which resulted in a further concentration within several
industries. Once more, a stock-market crash, this time in 1929, and the introduction of
the Clayton Act in the US to limit monopolistic behavior stopped this second merger
wave.
– The third merger wave (1965–1969)—The diversification and conglomerate era:
New management theories and portfolio techniques, as introduced by management
consultants of the likes as the Boston Consulting Group and McKinsey, have been
the intellectual backbone of the third merger wave. Corporate managers used M&A
to diversify their business activities and to create a balanced portfolio of strategic
business units concerning their cash flow, growth and risk patterns. The third M&A
boom was tapered off by the stock market underperformance of most of those new
conglomerates.
– The fourth merger wave (1981–1989)—The LBO and core competency era:
Starting in the 1980s, corporate raiders enforced the breakup of, foremost under-
performing, major conglomerates by using hostile takeovers and leveraged buyouts
(LBOs), meaning significantly leveraged acquisitions of the target companies. After
closing the acquisition, the target companies have been restructured by the new own-
ers and resold as secondary buyouts or in public markets. Driven by this takeover
threat conglomerates began by themselves divestment strategies of non-core busi-
nesses and refocused their corporate portfolios on their core competencies. This wave
collapsed by massive LBO bankruptcies and a slowing global economy.
– The fifth merger wave (1992–1999)—Global plays and TMT: A stock and bond
market boom, the transformative power of innovations in the technology, media and
telecommunication (TMT) industries combined with the trend to establish a global
footprint on the corporate side drove the global M&A marking to new records. At the
millennium, the bust of the TMT bubble also crashed global M&A activity.
– The sixth merger wave (2003–2008)—World awash in money, PE and financial
engineering: The global capital markets, on the debt side with low interest rates and
driven by aggressive monetary policies of the leading global central banks, on the
equity side with high stock market valuations, fueled more or less unlimited growth
and financing possibilities before the Global Financial Crisis in 2008 took off. A sig-
nificant portion of this exuberance in liquidity was used to finance acquisitions with
global ambitions and high risk. This contributed to highly leveraged acquisitions and
encouraged acquirers to overpay for attractive target companies within competitive
bid environments. In the end, the Global Financial Crisis in 2007/2008, with the crash
of Lehman Brothers and massive asset write-offs, forced the global banking industry
to stop excessive lending activities and to rebuild their capital structure. In addition,
the European sovereign debt crisis triggered additional capital market shocks. No sur-
prise, that M&A activity collapsed and recovered unusual slow in the aftermath of the
Global Financial Crises.
16 1 End-to-End (E2E) M&A Process Design

Top-Down Synergy Synergy proof of concept & Synergy implementaon,

Mapping & Scaling Synergy-Valuaon Blending tracking and controlling

 Synergy concept in line with strategic 
fit: Idea about qualita ve synergy
levers

 Defini on of underlying strategic and
financial assumpons

 First rough financial top-down
esmate (quan ta ve) of synergy
values (with benchmark)
 First priorizaon of synergies: value
contribu on, likelihood & ming
 First dra of synergy cases and
framing of requirements
 Combining synergy concept with
valuaon

 Es mate integraon costs (dys-
synergies)
Validaon & proof of top-down synergy  Final validaon and sign-off of
concept and values within DD Synergy Master Program and Synergy
Scorecards
Detailed and reframed priories with o Goals and value targets
Synergy Matrix (por‚olio): Timing & value o Timing & milestones
o Responsibili es (project owner)
Design of Synergy Master Program between
o Resources needed
signing & closing with detailed Synergy
Scorecards:
 Synergy implementaon
o Using informa on from DD & Synergy-Matrix
o Synergy business case with valua on impact
 Synergy tracking
o Implementa on plan and milestones ( ming)
o By DoI
o Defini on of teams, tasks and responsibili es
o Project repor ng and loops
o Necessary investments, resources &
capabili es
 Synergy controlling and connuous
o Dra of milestone and DOI repor ng
synergy update
Update combined value with latest  Synergy learning loop: Develop
synergy esmates synergy database

Fig. 1.8 Synergy Management: Modules and sub-processes

 A holistic Synergy Management starts within an early top-down assessment of

the most likely synergies as well as the definition of the time horizon to achieve them
and their volume, runs a proof-of-concept of the assumed synergies within the Due
Diligence and ensures a fast and focused realization of the intended synergies, includ-
ing real-time tracking and controlling of the synergy implementation.

Along with the Embedded M&A Strategy in a first step the likely synergies have to be
defined and roughly top-down quantified. This is mission-critical as from a valuation
point of view it has to be assessed if the value of likely synergies might justify the nec-
essary premium. Therefore, an early identification and quantification of the synergies are
mandatory. For a first estimate of the potential synergies, the financial statements and
information of the target company, benchmarks and, in case of an intra-industry acqui-
sition, the buyer’s in-house data might be used as an input for a first-hand synergy esti-
mate. Also, the likely time horizon of the synergies should be assessed. The combination
of the potential value of the synergies and their time horizon defines in an early stage the
priorities for the later synergy implementation and capture. For a net perspective, also
the present value of integration costs has to be taken into account.
Within the Transaction Management, especially within the Due Diligence, the syner-
gies have to be verified concerning their value contribution, their robustness, and their
timing. Based on this proof-of-concept the synergies could be classified in a synergy
portfolio in short-term versus long-term and low versus high value contributors. For the
most important synergies, detailed Synergy Scorecards with respect to the target values,
Another random document with
no related content on Scribd:
 Short of cowboys and lunatics, nobody could have imagined
such a feat of horsemanship. Of that pattern is frontier adventure—
daring gone mad; and yet it is very rarely that the frontiersman finds
the day’s work worth recording, or takes the trouble to set down on
paper the stark naked facts of an incident more exciting than a
shipwreck, more dangerous than a battle, and far transcending the
common experience of men.
Theodore Roosevelt
 Traveling alone in the Rockies, Colonel Roosevelt came at
sundown to a little ridge whence he could look into the hollow
beyond—and there he saw a big grizzly walking thoughtfully home to
bed. At the first shot, “he uttered a loud moaning grunt and plunged
forward at a heavy gallop, while I raced obliquely down the hill to cut
him off. After going a few hundred feet he reached a laurel thicket ...
which he did not leave.... As I halted I heard a peculiar savage whine
from the heart of the brush. Accordingly I began to skirt the edge
standing on tiptoe, and gazing earnestly in to see if I could not get a
glimpse of his hide. When I was at the narrowest part of the thicket
he suddenly left it directly opposite, and then wheeled and stood
broadside to me on the hillside a little above. He turned his head
stiffly toward me, scarlet strings of froth hung from his lips, his eyes
burned like embers in the gloom. I held true, aiming behind the
shoulder, and my bullet shattered the point or lower end of his heart,
taking out a big nick. Instantly the great bear turned with a harsh roar
of fury and challenge, blowing the bloody foam from his mouth, so
that I saw the gleam of his white fangs; and then he charged straight
at me, crashing and bounding through the laurel bushes so that it
was hard to aim.
“I waited until he came to a fallen tree, raking him as he topped it
with a ball which entered his chest and went through the cavity of his
body, but he neither swerved nor flinched, and at the moment I did
not know that I had struck him. He came unsteadily on, and in
another moment was close upon me. I fired for his forehead, but my
bullet went low, entering his open mouth, smashing his lower jaw,
and going into the neck. I leaped to one side almost as I pulled
trigger, and through the hanging smoke the first thing I saw was his
paw as he made a vicious side blow at me. The rest of his charge
carried him past. As he struck he lurched forward, leaving a pool of
bright blood where his muzzle hit the ground; but he recovered
himself and made two or three jumps onward, while I hurriedly
jammed a couple of cartridges into the magazine, my rifle only
holding four, all of which I had fired. Then he tried to pull up, but as
he did so his muscles seemed to give way, his head drooped, and he
rolled over—each of my first three bullets had inflicted a mortal
wound.”
 This man who had fought grizzly bears came rather as a surprise
among the politicians in silk hats who run the United States. He had
all the gentry at his back because he is the first man of unquestioned
birth and breeding who has entered the political bear-pit since the
country squires who followed George Washington. He had all the
army at his back because he had charged the heights at Santiago de
Cuba with conspicuous valor at the head of his own regiment of
cowboys. He had the navy at his back because as secretary for the
navy he had successfully governed the fleet. But he was no politician
when he came forward to claim the presidency of the United States.
Seeing that he could not be ignored the wire-puller set a trap for this
innocent and gave him the place of vice-president. The vice-
president has little to do, can only succeed to the throne in the event
of the president’s death, and is, after a brief term, barred for life from
any further progress. “Teddy” walked into the trap and sat down.
But when President McKinley was murdered the politicians found
that they had made a most surprising and gigantic blunder. By their
own act the cowboy bear fighter must succeed to the vacant seat as
chief magistrate of the republic. President Roosevelt happened to be
away at the time, hunting bears in the Adirondack wilderness, and
there began a frantic search of mountain peaks and forest solitudes
for the missing ruler of seventy million people. When he was found,
and had paid the last honors to his dead friend, William McKinley, he
was obliged to proceed to Washington, and there take the oaths. His
women folk had a terrible time before they could persuade him to
wear the silk hat and frock coat which there serve in lieu of
coronation robes, but he consented even to that for the sake of the
gorgeous time he was to have with the politicians afterward.
 XXIX
A. D. 1905
THE NORTHWEST PASSAGE

ONCE upon a time the Foul Fiend wanted a death-trap that would
pick out all the bravest men and destroy them, so he invented the
Northwest Passage.
So when Europe needed a short route to China round the north
end of the Americas our seamen set out to find a channel, and even
when they knew that any route must lie through the high Arctic, still
they were not going to be beaten. Our white men rule the world
because we refuse to be beaten.
The seamen died of scurvy, and it was two hundred years before
they found out how to stay alive on salted food, by drinking lime juice.
Safe from scurvy, they reached the gate of the passage at Lancaster
Sound, but there the winter caught them, so that their ships were
squashed in driving ice, and the men died of cold and hunger. Then
the explorers got ships too strong to be crushed; they copied the dress
of the Eskimo to keep them warm; and they carried food enough to last
for years. Deeper and deeper they forced their way into the Arctic, but
now they neared the magnetic pole where the compass is useless, in
belts of drifting fog darker than midnight. Still they dared to go on, but
the inner channels of the Arctic were found to be frozen until the
autumn gales broke up the ice-fields, leaving barely six weeks for
navigation before the winter frosts. At that rate the three-thousand-mile
passage would take three years. Besides, the ship must carry a deck
load of sledge dogs with their food, so that the men might escape
overland in case they were cast away. Only a big ship could carry the
supplies, but once again the seamen dared to try. And now came the
last test to break men’s hearts—the sea lane proved to be so foul with
shoals and rocks that no large vessel could possibly squeeze through.
At last, after three hundred years, the British seamen had to own
defeat. Our explorers had mapped the entire route, but no ship could
make the passage because it was impossible to raise money for the
venture.
Why should we want to get through this useless channel? Because
it was the test for perfect manhood free from all care for money, utterly
unselfish, of the highest intellect, patience, endurance and the last
possible extremity of valor.
And where the English failed a Norseman, Nordenskjöld made the
Northeast passage round the coast of Asia. Still nobody dared to
broach the Northwest passage round America, until a young Norse
seaman solved the riddle. Where no ship could cross the shoals it
might be possible with a fishing boat drawing only six feet of water. But
she could not carry five years’ supplies for men and dogs. Science
came to the rescue with foods that would pack into a tenth part of their
proper bulk, and as to the dog food, one might risk a deck load big as
a haystack, to be thrown off if the weather got too heavy. Still, how
could a fishing boat carry twenty men for the different expert jobs?
Seven men might be discovered each an expert in three or four
different trades; the captain serving as the astronomer and doctor, the
cook as a naturalist and seaman. So Roald Amundsen got Doctor
Nansen’s help, and that great explorer was backed by the king. Help
came from all parts of Scandinavia, and a little from Great Britain.
The Gjöa was a forty-seven ton herring boat with a thirteen horse-
power motor for ship’s pet, loaded with five years’ stores for a crew of
seven men, who off duty were comrades as in a yachting cruise. In
1903 she sailed from Christiania and spent July climbing the north
current in full view of the Greenland coast, the Arctic wonderland. At
Godhaven she picked up stores, bidding farewell to civilization, passed
Upernivik the last village, and Tassinssak, the last house on earth, then
entered Melville Bay with its three-hundred-mile frontage of glacier, the
most dangerous place in the Arctic. Beyond, near Cape York, she
found a deck load of stores left for her by one of the Dundee whalers.
There the people met the last white men, three Danish explorers
whose leader, Mylius Erichsen, was making his way to death on the
north coast of Greenland. So, like a barge with a hayrick, the overload
Joy crossed from the Greenland coast to Lancaster Sound, the gate of
the Northwest passage, whose gatepost is Beechey Island, sacred to
the memory of Sir John Franklin, and the dead of the Franklin search.
The Joy found some sole leather better than her own, a heap of useful
coal and an anvil, among the litter of old expeditions; made the graves
tidy; left a message at Franklin’s monument, and went on. For three
hundred years the channels ahead were known to have been blocked;
only by a miracle of good fortune could they be free from ice; and this
miracle happened, for the way was clear.

* * * * *
“I was sitting,” writes Amundsen on August thirty-first, “entering the
day’s events in my journal, when I heard a shriek—a terrific shriek,
which thrilled me to the very marrow. It takes something to make a
Norseman shriek, but a mighty flame with thick suffocating smoke was
leaping up from the engine room skylight. There the tanks held two
thousand two hundred gallons of petroleum, and close beside them a
pile of soaked cotton waste had burst with a loud explosion. If the
tanks got heated the ship would be blown into chips, but after a hard
fight the fire was got under. All hands owed their lives to their fine
discipline.”
A few days later the Joy grounded in a labyrinth of shoals, and was
caught aground by a storm which lifted and bumped her until the false
keel was torn off. The whole of the deck load had to be thrown
overboard. The only hope was to sail over the rocks, and with all her
canvas set she charged, smashing from rock to rock until she reached
the farther edge of the reef which was nearly dry. “The spray and sleet
were washing over the vessel, the mast trembled, and the Gjöa
seemed to pull herself together for a last final leap. She was lifted up
and flung bodily on the bare rocks, bump, bump, with terrific force.... In
my distress I sent up (I honestly confess it) an ardent prayer to the
Almighty. Yet another bump worse than ever, then one more, and we
slid off.”
The shock had lifted the rudder so that it rested with the pintles on
the mountings, and she would not steer; then somehow the pins
dropped back into their sockets, the steersmen regained control and
the Joy was saved, after a journey across dry rocks which ought to
have smashed any ship afloat. She did not even leak.
Near the south end of King William’s Land a pocket harbor was
found, and named Joy Haven. There the stores were landed, cabins
were built, the ship turned into a winter house, and the crew became
men of science. For two years they were hard at work studying the
magnetism of the earth beside the Magnetic Pole. They collected
fossils and natural history specimens, surveyed the district, studied the
heavens and the weather, hunted reindeer for their meat and clothing,
fished, and made friends with the scented, brave and merry Eskimos.
During the first winter the thermometer dropped to seventy-nine
degrees below zero, which is pretty near the world record for cold, but
as long as one is well fed, with bowels in working order, and has
Eskimo clothes to wear, the temperature feels much the same after
forty below zero. Below that point the wind fails to a breathless calm,
the keen dry air is refreshing as champagne, and one can keep up a
dog-trot for miles without being winded. It is not the winter night that
people dread, but the summer day with its horrible torment of
mosquitoes. Then there is in spring and autumn, a hot misty glare
upon the snow-fields which causes blindness with a deal of pain. The
Arctic has its drawbacks, but one remembers afterward the fields of
flowers, the unearthly beauty of the northern lights, the teeming game,
and those long summer nights when the sun is low, filling the whole
sky with sunset colors.
The greatest event of the first year was the finding of an Eskimo
hunter to carry letters, who came back in the second summer, having
found in Hudson’s Bay an exploring vessel of the Royal Northwest
Mounted Police of Canada. Major Moody, also the captain of the
Arctic, and the Master of an American whaler, sent their greetings,
news of the outer world, some useful charts, and a present of husky
dogs.
The second summer was over. The weather had begun to turn cold
before a northerly gale smashed the ice, and sea lanes opened along
the Northwest passage. On August thirteenth the Joy left her
anchorage, under sail and steam, to pick her way without compass
through blinding fog, charging and butting through fields of ice,
dodging zigzag through shoals, or squeezing between ice-fields and
the shore. There was no sleep for anybody during the first three nights,
but racking anxiety and tearing overstrain until they reached known
waters, a channel charted by the old explorers. They met an American
whaler, and afterward had clear open water as far as the mouths of the
Mackenzie River. A few miles beyond that the ice closed in from the
north and piled up-shore so that the passage was blocked and once
more the Joy went into winter quarters. But not alone. Ladies must
have corsets ribbed with whalebone from the bowhead whale. Each
whale head is worth two thousand pounds, so a fleet of American
whalers goes hunting in the Arctic. Their only port of refuge is Herschel
Island off the Canadian coast, so there is an outpost of the Northwest
Mounted Police, a mission station and a village of Eskimos.
The Joy came to anchor thirty-six miles to the east of Herschel
Island, beside a stranded ship in charge of her Norse mate, and daily
came passengers to and fro on the Fort Macpherson trail. From that
post runs a dog-train service of mails connecting the forts of the
Hudson’s Bay Company all the way up the Mackenzie Valley to
Edmonton on the railway within two thousand miles. The crew of the
Joy had company news, letters from home, and Captain Amundsen
went by dog-train to the mining camps on the Yukon where at Eagle
City he sent telegrams.
At last in the summer of 1906 the Joy sailed on the final run of her
great voyage, but her crew of seven was now reduced to six, and at
parting she dipped her colors to the cross on a lone grave. The ice
barred her passage, but she charged, smashing her engines, and
charged again, losing her peak which left the mainsail useless. So she
won past Cape Prince of Wales, completing the Northwest passage,
and entering Bering Sea called at Cape Nome for repairs. There a
thousand American gold miners welcomed the sons of the vikings with
an uproarious triumph, and greeted Captain Amundsen with the Norse
national anthem.
 XXX
A. D. 1588
JOHN HAWKINS

MASTER JOHN HAWKINS, mariner, was a trader’s son, familiar

from childhood with the Guinea coast of Africa. Worshipful
merchants of London trusted him with three ridiculously small ships,
the size of our fishing smacks, but manned by a hundred men. With
these, in 1562—the “spacious times” of great Elizabeth—he
swooped down on the West African coast, and horribly scared were
his people when they saw the crocodiles. The nature of this animal
“is ever when he would have his prey, to sob and cry like a Christian
bodie, to provoke them to come to him, and then he snatcheth at
them.” In spite of the reptiles, Master Hawkins “got into his
possession, partly by the sword, and partly by other means,” three
hundred wretched negroes.
The king of Spain had a law that no Protestant heretic might
trade with his Spanish colonies of the West Indies, so Master
Hawkins, by way of spitting in his majesty’s eye, went straight to
Hispaniola, where he exchanged his slaves with the settlers for a
shipload of hides, ginger, sugar and pearls.
On his second voyage Master Hawkins attempted to enslave a
whole city, hard by Sierra Leone, but the Almighty, “who worketh all
things for the best, would not have it so, and by Him we escaped
without danger, His name be praised for it.” Hawkins had nearly
been captured by the negroes, and was compelled to make his pious
raids elsewhere. Moreover, when he came with a fleet loaded with
slaves to Venezuela, the Spanish merchants were scared to trade
with him. Of course, for the sake of his negroes, he had to get them
landed somehow, so he went ashore, “having in his greate boate two
falcons of brasse, and in the other boates double bases in their
noses.” Such artillery backed by a hundred men in plate armor,
convinced the Spaniards that it would be wise to trade.
On his third voyage, Master Hawkins found the Spaniards his
friends along the Spanish main, but the weather, a deadly enemy,
drove him for refuge and repair to San Juan d’Ullua, the port of
Mexico. Here was an islet, the only shelter on that coast from the
northerly gales. He sent a letter to the capital for leave to hold that
islet with man and guns while he bought provisions and repaired his
ships. But as it happened, a new viceroy came with a fleet of thirteen
great ships to claim that narrow anchorage, and Hawkins must let
them in or fight. “On the faith of a viceroy” Don Martin de Henriquez
pledged his honor before Hawkins let him in, then set his ships close
aboard those of England, trained guns to bear upon them, secretly
filled them with troops hid below hatches, and when his treason was
found out, sounded a trumpet, the signal for attack. The Englishmen
on the isle were massacred except three, the queen’s ship Jesus, of
Lubeck, was so sorely hurt that she had to be abandoned, and only
two small barks, the Minion and the Judith, escaped to sea. The
Spaniards lost four galleons in that battle.
Sir John Hawkins
 As to the English, they were in great peril, and parted by a storm.
The Judith fared best, commanded by a man from before the mast,
one Francis Drake, who brought the news to England that Hawkins
had more than two hundred people crowded upon the Minion without
food or water. “With many sorrowful hearts,” says Hawkins, “we
wandered in an unknown sea by the span of fourteen dayes, till
hunger forced us to seeke the lande, for birdes were thought very
goode meate, rattes, cattes, mise and dogges.”
It was then that one hundred fourteen men volunteered to go
ashore and the ship continued a very painful voyage.
These men were landed on the coast of Mexico, unarmed, to be
stripped naked presently by red Indians, and by the Spaniards
marched as slaves to the city of Mexico, where after long
imprisonment those left alive were sold. The Spanish gentlemen, the
clergy and the monks were kind to these servants, who earned
positions of trust on mines and ranches, some of them becoming in
time very wealthy men though still rated as slaves. Then came the
“Holy Hellish Inquisition” to inquire into the safety of their souls. All
were imprisoned, nearly all were tortured on the rack, and flogged in
public with five hundred lashes. Even the ten gentlemen landed by
Hawkins as hostages for his good faith shared the fate of the
shipwrecked mariners who, some in Mexico and some in Spain,
were in the end condemned to the galleys. And those who kept the
faith were burned alive. From that time onward, whatever treaties
there might be in Europe, there was never a moment’s peace for the
Spanish Indies. All honest Englishmen were at war with Spain until
the Inquisition was stamped out, and the British liberators had
helped to drive the Spaniards from the last acre of their American
empire.
When Hawkins returned to England, Mary, Queen of Scots, was
there a prisoner. The sailor went to Elizabeth’s minister, Lord
Burleigh, and proposed a plot. By this plot he entered into a treaty
with the queen of Scots to set her on the throne. He was to join the
Duke of Alva for the invasion and overthrow of England. So pleased
was the Spanish king that he paid compensation to Hawkins for his
losses at San Juan d’Ullua and restored to freedom such of the
English prisoners as could be discovered. Then Hawkins turned loyal
again, and Queen Elizabeth knighted him for fooling her enemies.
 XXXI
A. D. 1573
FRANCIS DRAKE

THE Judith had escaped from San Juan d’Ullua and her master,
Francis Drake, of Devon, was now a bitter vengeful adversary, from
that time onward living to be the scourge of Spain. Four years he
raided, plundered, burned along the Spanish main, until the name
Drake was changed to Dragon in the language of the dons.
Then in 1573 he sailed from Plymouth with five little ships to
carry fire and sword into the South Seas, where the flag of England
had never been before. When he had captured some ships near the
Cape de Verde Islands, he was fifty-four days in unknown waters
before he sighted the Brazils, then after a long time came to
Magellan’s Straits, where he put in to refresh his men. One of the
captains had been unfaithful and was now tried by a court-martial,
which found him guilty of mutiny and treason against the admiral.
Drake offered him a ship to return to England and throw himself on
the queen’s mercy, or he might land and take his chance among the
savages, or he could have his death, and carry his case to the
Almighty. The prisoner would not rob the expedition of a ship, nor
would he consort with the degraded tribes of that wild Land of Fire,
but asked that he might die at the hands of his countrymen because
of the wrong he had done them. So the date was set for his
execution, when all the officers received the holy communion, the
prisoner kneeling beside the admiral. After that they dined together
for the last time, and when they had risen from table, shook hands at
parting, the one to his death, the others to their voyage. May
England ever breed such gentlemen!
 The squadron had barely got clear of the straits and gained the
Pacific Ocean, when bad weather scattered all the ships. Drake went
on alone, and on the coast of Chili, met with an Indian in a canoe,
who had news of a galleon at Santiago, laden with gold from Peru.
The Spaniards were not at all prepared for birds of Drake’s feather
on the South Seas, so that when he dropped in at Santiago they
were equally surprised and annoyed.
The galleon’s crew were ashore save for six Spaniards and three
negroes, so bored with themselves that they welcomed the visitors
by beating a drum and setting out Chilian wine. But when Master
Moon arrived on board with a boat’s crew, he laid about him
outrageously with a large sword, saying, “Down, dog!” to each
discomfited Spaniard, until they fled for the hold. Only one leaped
overboard, who warned the town, whereat the people escaped to the
bush, leaving the visitors to enjoy themselves. The cargo of gold and
wine must have been worth about fifty thousand pounds, while
Santiago yielded a deal of good cheer besides, Master Fletcher, the
parson, getting for his “spoyle” a silver chalice, two cruets and an
altar cloth.
 Sir Francis Drake

Greatly refreshed, the English went on northward, carefully

inspecting the coast. At one place a sleeping Spaniard was found on
the beach with thirteen bars of silver. “We took the silver and left the
man.” Another place yielded a pack-train of llamas, the local beast of
burden, with leather wallets containing eight hundred pounds’ weight
of silver. Three small barks were searched next, one of them being
laden with silver; then twelve ships at anchor, which were cut adrift;
and a bark with eighty pounds’ weight of gold, and a golden crucifix
set with emeralds. But best of all was the galleon Cacafuego,
overtaken at sea, and disabled at the third shot, which brought down
her mizzenmast. Her cargo consisted of “great riches, as jewels and
precious stones, thirteen chests full of royals of plate, four score
pounds weight of golde, and six and twentie tunne of silver.” The
pilot being the possessor of two nice silver cups, had to give one to
Master Drake, and the other to the steward, “because hee could not
otherwise chuse.”
Every town, every ship was rifled along that coast. There was
neither fighting nor killing, but much politeness, until at last the ship
had a full cargo of silver, gold and gems, with which she reached
England, having made a voyage round the world. When Queen
Elizabeth dined in state on board Drake’s ship at Greenwich, she
struck him with a sword and dubbed him knight. Of course he must
have armorial bearings now, but when he adopted the three wiverns
—black fowl of sorts—of the Drake family, there were angry protests
against his insolence. So the queen made him a coat-of-arms, a
terrestrial globe, and a ship thereon led with a string by a hand that
reached out of a cloud, and in the rigging of the said ship, a wivern
hanged by the neck.
It was Parson Fletcher who wrote the story of that illustrious
voyage, but he does not say how he himself fell afterward from
grace, being solemnly consigned by Drake to the “devil and all his
angells,” threatened with a hanging at the yard-arm, and made to
bear a posy on his breast with these frank words, “Francis Fletcher,
ye falsest knave that liveth.”
Drake always kept his chaplain, and dined “alone with musick,”
did all his public actions with large piety and gallant courtesy, while
he led English fleets on insolent piracies against the Spaniards.
From his next voyage he returned leaving the Indies in flames,
loaded with plunder, and smoking the new herb tobacco to the
amazement of his countrymen.
Philip II was preparing a vast armada against England, when
Drake appeared with thirty sail on the Spanish coast, destroyed a
hundred ships, swept like a hurricane from port to port, took a
galleon laden with treasure off the western islands, and returned to
Plymouth with his enormous plunder.
Next year Drake was vice-admiral to Lord Howard in the
destruction of the Spanish armada.
 In 1589 he led a fleet to deliver Portugal from the Spaniards,
wherein he failed.
Then came his last voyage in company with his first commander,
Sir John Hawkins. Once more the West Indies felt the awful weight
of his arm, but now there were varying fortunes of defeat, of
reprisals, and at the end, pestilence, which struck the fleet at
Nombre de Dios, and felled this mighty seaman. His body was
committed to the sea, his memory to the hearts of all brave men.

Queen Elizabeth
 XXXII
A. D. 1587
THE FOUR ARMADAS

HERE let us call a halt. We have come to the climax of the great
century, the age of the Renaissance, when Europe was born again; of
the Reformation, when the Protestants of the Baltic fought the
Catholics of the Mediterranean for the right to worship in freedom; and
of the sea kings who laid the foundations of our modern world.
Islam had reached her fullest flood of glory with the fleets of
Barbarossa, the armies of the Sultan Suleiman, and all the splendors
of Akbar the Magnificent, before her ebb set downward into ruin.
Portugal and Spain, under one crown, shared the plunder of the
Indies and the mastery of the sea.
Then, as the century waned, a third-class power, the island state of
England, claimed the command of the sea, and planted the seeds of
an empire destined to overshadow the ruins of Spain, as well as the
wreck of Islam.
Here opened broad fields of adventure. There were German and
English envoys at the court of Russia; English merchants seeking
trade in India, Dutch gunners in the service of eastern princes, French
fishermen finding the way into Canada, seamen of all these nations as
slaves in Turkish galleys or in Spanish mines; everywhere sea fights,
shipwrecks, trails of lost men wandering in unknown lands, matters of
desert islands, and wrecked treasures with all the usual routine of
plague, pestilence and famine, of battle, of murder and of sudden
death.
In all this tangle we must take one thread, with most to learn, I
think, from a Hollander, Mynheer, J. H. van Linschoten, who was clerk