m&a transaction case study

Mergers and Acquisitions Examples: The largest company M&A deals list

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

This post was originally published in August 2019 and has been updated for relevancy in May 2, 2024.

When it comes to mergers and acquisitions, bigger doesn’t always mean better - the examples we included in our list of the biggest M&A failures is evidence of that.

In fact, all things being equal, the bigger a deal becomes, the bigger the likelihood that the buyer is overpaying for the target company. But whether you like mega deals or not, we cannot afford to ignore them.

At DealRoom, we help companies evolve and streamline multiple large and successful M&A deals each year. In this article, we collected some of the biggest deals in history.

Related: 11 Biggest M&A Deals of 2022 and 8 Biggest Upcoming M&A Deals in 2023 (so far)

Biggest mergers and acquisitions examples list.

Reading this list, it can seem that the biggest deals are doomed to failure (at least from the perspective of their shareholders). But thankfully, that just isn’t the case. Some of the biggest M&A transactions of the past 30 years have been outstanding successes.

Many of these deals have achieved what they set out to do at the outset - to reshape industries on the strength of a single deal.

With that in mind, let's take a closer look at 25 companies that recorded the largest mergers and acquisitions in history.

1. Vodafone and Mannesmann (1999) - $202.8B ($373B adjusted for inflation)

As of March 2024, the takeover of Mannesmann by Vodafone in 2000 was still one of the largest acquisitions ever made. Worth ~ $203 billion at that time, Vodafone, a mobile operator based in the United Kingdom, acquired Mannesmann, a German-owned industrial conglomerate company.

This deal made Vodafone the world’s largest mobile operator and set the scene for dozens of mega deals in the mobile telecommunications space in the years that followed. This deal is still considered as the biggest acquisition in history.

details of the biggest acquisition history infograph

2. Shenhua Group and China Guodian Corporation (2017) - $278B ($354B adjusted for inflation)

The merger between Shenhua Group and China Guodian Corporation is the biggest example of a merger of equals that happened in 2017. Shenhua Group is China’s largest coal provider, while China Guodian Corporation is one of the top five electricity producers.

This $278 billion merger created the world’s largest power utility company by installed capacity. The goal of the merger was to create a balanced energy portfolio between coal power and renewable energy. This is to align with China’s broader environmental and economic objectives .

3. AOL and Time Warner (2000) - $182B ($325B adjusted for inflation)

When we mentioned at the outset of this article that ‘ big doesn’t always mean better ’, the famous merger of AOL, a U.S.-based internet service provider, and Time Warner, an American cable television company, in 2000 is a case in point.

In little over two decades, the deal has become cemented as the textbook example of how not to conduct mergers and acquisitions. It featured everything from overpaying to strong cultural differences and even, with the benefit of hindsight, two large media companies who just weren’t sure where the media landscape was headed.

The merger's valuation came crashing down after the dot-com bubble burst just two months after the deal was signed. The deal, which is to be known as the largest merger in history, fell apart in 2009, 9 years later after it was originally signed.

4. ChemChina and Sinochem (2018) - $245B ($309B adjusted for inflation)

The ChemChina and Sinochem merger was part of the Chinese government’s bigger plan to strengthen their competitiveness in the global stage by reducing the overall number of its state-owned enterprises through merging its biggest companies to create a larger firm.

This specific merger created the world’s largest industrial chemicals company, known as Sinochem Holdings, which surpassed major global competitors like BASF in North America in terms of scale and market presence.

5. Gaz de France and Suez (2007) - $182B ($259B adjusted for inflation)

France loves its national champions - the large French companies that compete on a world stage, waving the tricolor. It was no surprise then, when Nicholas Sarkozy, President of France in 2007, stepped in to save this merger.

That’s right - a President playing the role of part-time investment banker. These days, Suez is one of the oil and gas ‘majors’, although the fact that the company’s share price hovers very close to where it was a decade and a half ago tells us everything of what investors thought of the deal.

The deal, one of the biggest mergers ever in energy, created the world’s fourth largest energy company and Europe’s second largest electricity and gas group. The merged companies created a diversified, flexible energy supply stream with a high-performance electricity production base.

6. Glaxo Wellcome and SmithKline Beecham merger (2000) - $107B ($197B adjusted for inflation)

The merger of the UK’s two largest pharmaceutical firms in 2000 led to what is currently the 6th largest pharmaceutical firm in the world, and the only British firm in the top 10.

However, like several deals on this list, it wasn’t received particularly well by investors and at the time of writing is trading at about 25% less than the time of the merger.

This, and a range of bolt-on acquisitions in the consumer space over the past decade, may explain why the company is planning to split into two separate companies in the coming years.

7. Verizon and Vodafone (2013) - $130B ($173B adjusted for inflation)

Vodafone has been involved in so many transactions over the past 20 years that they should be getting quite efficient at the process at this stage. The $130B deal in 2013 allowed Verizon to pay for its US wireless division.

At the time, the deal was the third largest in history - two of which Vodafone had partaken in. From Verizon’s perspective, it gave the company full control over its wireless division, ending an often fraught relationship with Vodafone that lasted for over a decade, and also allowed it to build new mobile networks and contend with an increasingly competitive landscape at the time.

From Vodafone's point of view, the acquisition cut the company value roughly in half, to $100 billion. The business acquisition also moved Vodafone from the second largest phone company in the world down to fourth, behind China Mobile, AT&T, and Verizon.

8. Dow Chemical and DuPont merger (2015) - $130B ($166B adjusted for inflation)

When Dow Chemical and DuPont announced they were merging in 2015, everyone sat up and took notice; the merger of equals would create the largest chemicals company by sales in the world, as well as eliminate the competition between them, making it a picture-perfect example of horizontal merger.

Shortly after the deal was completed, in 2018, the company was already generating revenue of $86B a year - but it didn’t last long: In 2019, management announced that the merged company would spin off into three separate companies, each with a separate focus.

9. United Technologies and Raytheon (2019) - $121B ($147B adjusted for inflation)

The merger between United Technologies Corporation (UTC) and Raytheon Company created Raytheon Technologies, an aerospace and defense giant. The new legal entity is expected to be the leader in aerospace and defense industries, with a broadened portfolio and enhanced market reach.

Now that the deal went through, Raytheon can leverage United Technologies' expertise in high temperature materials for jet engines; and in directed energy weapons, United Technologies has relevant power generation and management technology.

So far, however, investors seem less convinced with the company’s share price taking a dip of around 25% straight after the deal closed.

10. AB InBev and SABMiller merger (2015) - $107B ($138B adjusted for inflation)

If stock price is any indication of whether a deal was successful or not, then the creation of AmBev through the merger of InBev and SABMiller in 2015 certainly wasn’t.

On paper, the deal looked good - two of the world’s biggest brewers bringing a host of the world’s favorite beers into one stable.

There was just one problem - they didn’t foresee the rise of craft beers and how it would disrupt the brewing industry. Several bolt-on acquisitions of craft brewers later and the new company may finally be on track again.

11. AT&T and Time Warner (2018) - $108B ($134B adjusted for inflation)

Not only did the proposed merger of AT&T and Time Warner draw criticism from antitrust regulators when it was announced, it also brought back memories of the previous time Time Warner had been involved in a megadeal.

With the best part of two decades to learn from its mistake, and AT&T a much bigger cash generator than AOL, this deal looks like it has been better thought through than the deal that preceded it.

12. Heinz and Kraft merger (2015) - $100B ($131B adjusted for inflation)

The merger of Heinz and Kraft - to create the Kraft Heinz Company - is yet another megadeal that has a detrimental effect on stock.

The deal has been called a “ mega-mess ,” with billions knocked off the stock price since the deal closed. One of the reasons has been allegations made about accounting practices at the two firms before the merger.

Another reason has been zero-based budgeting (ZBB), a strict cost cutting regime that came at a time when old brands needed to be refreshed rather than have their budgets cut back.

13. BMO Financial Group and Bank of the West (2021) - $105B ($119.5B adjusted for inflation)

On December 20, 2021, BMO Financial Group announced the acquisition of BNP Paribas SA unit Bank of the West and its subsidiaries with assets worth approximately $105B. This merger is expected to significantly expand BMO’s presence in the U.S.

Through this acquisition, BMO can expand their customer base, increase their market presence in new regions, and enhance their existing capabilities with complementary products and services offered by Bank of the West.

14. Bristol-Myers Squibb and Celgene merger (2019) - $95B ($115B adjusted for inflation)

Despite the massive size of the transaction, this 2019 megadeal wasn’t a “merger of equals.” Instead, Celgene became a subsidiary of Bristol-Myers Squibb. The deal brings together two of the world’s largest cancer drug manufacturers, so hopefully the deal amounts to something much greater than the sum of the parts.

15. Energy Transfer Equity and Energy Transfer Partners (2018) - $90B ($111B adjusted for inflation)

This deal is part of a strategic initiative to simplify Energy Transfer Equity’s corporate structure and streamlining their operations.

Each ETP unit was converted into 1.28 ETE units, resulting in a major redistribution of shares but keeping the business essentially continuous under a new name.

ETE was renamed Energy Transfer LP and began trading under the ticker symbol "ET" on the New York Stock Exchange. On the other hand, ETP was renamed Energy Transfer Operating L.P.

16. Unilever plc and Unilever N.V. (2020) - $81B ($97B adjusted for inflation)

The M&A deal between Unilever plc and Unilever N.V. in 2020 was essentially a unification strategy. The primary goal was to create a more cohesive organization with streamlined operations and increased strategic flexibility.

During this process, they made sure nothing will change in their operations, locations, activities or staffing levels in either The Netherlands or the United Kingdom.

17. Walt Disney and 21st Century Fox (2017) - $52.4B ($83.7B adjusted for inflation)

In December 2017, The Walt Disney Company acquired 21st Century Fox. Walt Disney’s goal was to boost their global presence and content diversity, adding to its strong franchise and streaming service portfolio. This acquisition enhanced Disney’s entertainment library and direct-to-consumer streaming offerings, bringing franchises like X-Men and Deadpool under one roof.

18. Bayer and Monsanto (2018) - $63B ($78B adjusted for inflation)

The deal between Bayer and Monsanto worth approximately $63B created one of the world's biggest agrochemical and agricultural biotechnology corporations. Bayer was known widely for its pharmaceutical division, but it also has a substantial crop science division, where they offer chemical and crop protection.

Through the Monsanto acquisition, Bayer has strengthened their agricultural business using Monsanto’s expertise, which ultimately made them a global leader in seeds, traits, and agricultural chemicals.

After the completion of the deal in 2018, the integration has been complex due to the legacy issues inherited from the acquisition of Monsanto, such as culture, reputation, and legal and regulatory issues.

19. Microsoft and Activision Blizzard (2023) - $75.4B ($76.5B adjusted for inflation)

On January 18, 2022, Microsoft announced its intent to acquire Activision Blizzard, initially valued at $68.7B. The goal of this strategic acquisition was to significantly boost its gaming segment across various platforms including mobile, PC, console, and cloud.

Microsoft can do this by integrating Activision Blizzard's strong portfolio of popular gaming franchises like Call of Duty, World of Warcraft, and Candy Crush. After overcoming numerous regulatory challenges, the deal was finalized on October 13, 2023.

This acquisition, with the total cost amounting to $75.4 billion, represents one of the largest deals in the video game industry.

20. Broadcom and VMWare (2023) - $61B ($62B adjusted for inflation)

In November 2023, Broadcom acquired VMWare to strengthen its infrastructure software business by integrating VMWare’s extensive multi-cloud services capabilities.

Due to the large scale of both companies’ operations, the deal had to go through a massive regulatory scrutiny and review. It involved multiple jurisdictions across the globe to assess its impact on competition and market dynamics within the tech industry.

21. Exxon Mobil and Pioneer Natural Resources (2023) - $59.5B ($60B adjusted for inflation)

As part of their strategy to enhance their production capabilities and market presence in the oil and gas industry, Exxon Mobil merged with Pioneer Natural Resources.

They announced this deal in October 2023, with the goal to achieve a partnership that would combine their strengths in terms of resources and strengthen their portfolio in the global energy market.

ExxonMobil’s Senior Vice President, Niel Chapman, reaffirms that the deal is still on track and is set to close in the second quarter of 2024.

22. S&P Global and IHS Markit (2020) - $44B ($52.8B adjusted for inflation)

S&P Global announced an all-stock merger with IHS Markit worth $44 billion in November 2020. Through this deal, S&P Global will gain access to a data provider that supplies financial information to 50,000 customers across business and governments. Both companies expected a generated annual free cash flow of exceeding $5bn by 2023.

23. Discovery, Inc. and WarnerMedia (2022) - $43B ($46B adjusted for inflation)

On April 8, 2022, Discovery Inc. and WarnerMedia finalized a merger that would enhance their global media and entertainment footprint. The goal was to combine Warnermedia’s extensive entertainment assets with Discovery's non-fiction and international entertainment.

This $43B deal formed a new entity called Warner Bros. Discovery, which now has a vast portfolio that includes networks such as CNN, HBO, and Discovery Channel, as well as streaming services like HBO Max and Discovery+.

This horizontal merger boosted the newly formed company to compete with other major players like Netflix and Disney+ by providing a richer diversity of content across genres.

24. Pfizer and Seagen (2023) - $43B ($43.7B adjusted for inflation)

Pfizer’s acquisition of Seagen for $43B in March 2023 marked one of the largest deals in the biopharmaceutical sector since 2019.

Since Seagen is a biotech company known for its expertise in developing antibody-drug conjugates (ADCs) and other innovative cancer therapies, this acquisition will strengthen Pfizer’s oncology portfolio and expand their presence in the cancer treatment market.

25. Altimeter and Grab Holdings (2021) - $40B ($46.7B adjusted for inflation)

Altimeter’s stock-for-stock merger with Grab Holdings marked as the largest de-SPAC transaction at that time, worth approximately $40B.

Instead of a traditional IPO process, Altimeter helped Grab go public through a reverse merger. The primary motive of the deal was to boost Grab's dominance in Southeast Asia by providing them with additional capital to propel their expansion and face their fierce competition, particularly Gojek.

It's a win-win move for Altimeter because the merger carved an opportunity for them to invest in a fast-growing tech company with a solid market presence in a rapidly developing region.

Merger examples

A merger is a transaction of two companies, usually of similar size, mutually agreeing to combine their businesses into one entity.

This is distinct from an acquisition , where one company (the buyer) buys the outstanding shares of a target company, and the target company’s shareholders receive the proceeds from selling those shares.

Here are a few examples of mergers that have happened in the M&A landscape:

Exxon Mobil and Pioneer Natural Resources (2023) - $59.5B ($60B adjusted for inflation)

This is a great example of a merger of equals where no payment was made from one company to another. This was an all-stock transaction, where Pioneer shareholders will receive 2.3234 shares of ExxonMobil for each Pioneer share at closing.

United Technologies and Raytheon (2019) - $121B ($147B adjusted for inflation)

Another classic example of a so-called “ merger of equals .” The United Technologies and Raytheon merger is also an all-stock transaction, where Raytheon shareholders receive shares in the new company, while UTC shareholders maintain a majority stake.

Discovery, Inc. and WarnerMedia (2022) - $43B ($46B adjusted for inflation)

Despite the first two examples mentioned above, not all mergers involve two equal-sized companies. When AT&T owned WarnerMedia, they merged it with a smaller company, Discovery Inc. This special kind of deal is called a Reverse Morris Trust. So even though it's a merger, AT&T got $40.4 billion in cash as a payment.

This payment was part of the deal to help balance things out between what AT&T was giving up and what they were getting in return. AT&T shareholders also ended up owning a big part of the combined company.

Acquisition example

An acquisition is a transaction whereby companies, organizations, and/or their assets are acquired for some consideration by another company. The motive for one company to acquire another is nearly always growth.

In the next section, let’s take a look at great acquisitions examples that have happened in M&A history.

Microsoft and Activision Blizzard (2022) - $75.4B ($76.5B adjusted for inflation)

This is an example of an outright acquisition. In December 2021, Blizzard faced allegations and a lawsuit regarding workplace misconduct, specifically discrimination against women employees. Their reputation and business operations were taking a hit, and they wanted an out.

Meanwhile Microsoft wanted Activision's iconic franchises like “Call of Duty” and “World of Warcraft” to increase their presence in the gaming industry. Activision saw Microsoft’s acquisition as a way to address internal issues under new leadership, while Microsoft potentially expanding its footprint in the gaming industry.

Walt Disney and 21st Century Fox (2017) - $52.4B ($83.7B adjusted for inflation)

Another classic example of an acquisition is the Walt Disney and 21st Century Fox deal. During this time, the media landscape was rapidly changing and traditional media companies like 21st Century Fox were facing significant competition from new digital entrants like Netflix and Amazon. Fox wanted to sell their company to focus on their core strengths, primarily news and sports.

On the other hand, Walt Disney had better content creation and distribution, which allowed them to benefit from this transaction.

Amazon and Whole Foods (2017) - $13.7B ($17B adjusted for inflation)

Though this deal did not make our top 25, it’s certainly a great example of a successful acquisition. Amazon bought Whole Foods in 2017 for approximately $13.7B to have greater control of their supply chain and broaden their reach into new markets.

Before this deal, Amazon was more focused on e-commerce. This strategic move allowed them to expand into the brick-and-mortar grocery sector, through Whole Foods. Amazon was able to integrate its e-commerce capabilities with Whole Foods' physical store network and achieved economies of scale in several areas, especially in distribution and logistics.

Lessons from successful and failed mergers and acquisitions

Whether it’s a success or failure, there are always lessons to be learned in the world of mergers & acquisitions. Here are some of the best lessons we want to emphasize and share.

Don’t overlook culture

In the past, culture was one of the most underrated aspects of M&A. No one cared about it, and deal makers were only focused on the numbers and synergies. Today, practitioners are catching on, and they tend to focus more on culture during due diligence. But for those who are still not believers, you can always look up the Daimler Benz and Chrysler deal back on May 7, 1998.

Daimler was aggressive during integration and Chrysler didn’t want to be told what to do. They didn’t get along and continued to run as separate operations. The entire deal was a disaster, which eventually led to Daimler Benz selling Chrysler to the Cerberus Capital Management firm.

Don’t take due diligence for granted

M&A teams must never take due diligence for granted and turn every possible stone. One mistake can cause massive headaches, and potentially destroy the acquiring company. HP learned this the hard way when they acquired Autonomy back in 2011. The plan was to transform HP from a computer and printer maker into a software-focused enterprise services firm.

The problem came after the deal was closed, and HP discovered that Autonomy was cooking the books by selling hardware at a loss to its customers while booking the sales as software licensing revenue. This is one of the most controversial deals of all time, generating massive lawsuits due to fraudulent accounting practices.

Plan for integration early in the process

The biggest mistake any practitioner could make is not planning for integration early in the M&A process . Integration is where value is created, and must be prioritized during due diligence.

The Sprint and Nextel Communications deal back in 2005 is a great example of the importance of integration planning. The combination of these two legal entities created the third largest telecommunications provider at that time. The goal is to gain access to each other's customer bases and cross sell their product lines.

However due to the lack of integration planning during the diligence they were not prepared for what was about to come after closing. Apparently the two companies' networks did not share the same technology and had zero overlap making integration extremely difficult. They also lost a significant amount of market share due to their clashing marketing strategies that allowed rivals to steal dissatisfied customers.

Final thoughts

Overall, it’s hard to argue which deal in US history is the most successful merger or acquisition due to the fact that sometimes the full value and potential of a deal takes years to formulate.

However, the top mergers and acquisitions take into account best practices such as robust communication, focus on the strategic goal/deal thesis, and early integration planning throughout the deal lifecycle.

Much can be learned from companies that have successfully merged with or acquired other companies.

The right technology and tools can also work to make deals more successful. DealRoom’s M&A project management software and tools aims to help teams manage their complex M&A transactions.

Whether teams need deal management software, due diligence process assistance, help with their post merger (PMI) process, or just a simple VDR, our platform provides the necessary technology and features to streamline M&A processes.

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Deciphering the M&A Case Study Framework: A Comprehensive Guide

Looking to master the art of M&A case study analysis? Look no further than our comprehensive guide! From understanding the key components of a successful framework to analyzing real-world case studies, this article has everything you need to become an expert in M&A strategy.

Posted May 11, 2023

Mergers and acquisitions (M&A) are an essential aspect of the modern business world, where companies are looking for ways to expand their operations, increase their market share, and diversify their product offerings. M&A can take many forms, including mergers, acquisitions, joint ventures, and strategic alliances. This comprehensive guide aims to provide a detailed understanding of the M&A case study framework and the critical factors that influence the success of M&A transactions.

What is M&A and Why is it Important in Today's Business Landscape?

Mergers and acquisitions refer to the process of combining two or more companies or businesses. M&A is typically used as a growth strategy as it enables companies to expand their market share, reduce their costs, gain access to new technologies or products, and achieve economies of scale. M&A is also used as a way for companies to enter new markets, diversify their product offerings or strategic partnerships and collaborations.

M&A is a critical aspect of today's business landscape, as it enables companies to maximize value creation and improve their competitiveness in the global marketplace. Successful M&A transactions can lead to better financial performance, increased shareholder value, and enhanced market position.

However, M&A transactions can also be risky and complex, requiring careful planning, due diligence, and execution. Companies must consider various factors such as cultural differences, regulatory requirements, and potential legal issues that may arise during the process. Poorly executed M&A transactions can result in financial losses, damage to reputation, and even legal consequences.

Moreover, M&A activity is influenced by various external factors such as economic conditions, political instability, and technological advancements. For instance, the COVID-19 pandemic has significantly impacted M&A activity, with many companies delaying or canceling their transactions due to the uncertainty and economic downturn caused by the pandemic.

Understanding the Different Types of M&A Transactions

There are several different types of M&A transactions that companies can use as a growth strategy, such as horizontal, vertical, and conglomerate mergers and acquisitions.

Horizontal mergers involve the combination of two companies that operate in the same industry or market. Such mergers aim to increase market share, reduce competition, and achieve economies of scale.

Vertical mergers refer to the combination of two companies that operate in different levels of the value chain of the same industry. Vertical mergers aim to increase efficiency, reduce the cost of raw materials, and improve supply-chain management.

Conglomerate mergers involve the combination of two unrelated companies that operate in different industries or markets. Such mergers aim to diversify the product portfolio, reduce business risk, and achieve economies of scale.

Another type of M&A transaction is a reverse merger, which involves a private company acquiring a public company. This allows the private company to go public without having to go through the lengthy and expensive process of an initial public offering (IPO).

Finally, there are also friendly and hostile takeovers. A friendly takeover is when the target company agrees to be acquired by the acquiring company, while a hostile takeover is when the acquiring company makes an offer to the target company's shareholders without the approval of the target company's management.

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Identifying the Key Players in M&A Case Studies

There are several key players involved in M&A transactions, including the acquiring company, the target company, the board of directors, the shareholders, and the investment bankers and advisors. The acquiring company is the buyer of the target company, while the target company is the company that is being acquired. The board of directors plays a crucial role in the approval of the transaction, while shareholders have the power to vote and approve the deal. Investment bankers and advisors are usually responsible for facilitating the transaction and advising on the best strategy for the acquiring company.

It is important to note that the role of each key player can vary depending on the specific M&A case. For example, in a hostile takeover, the target company and its board of directors may resist the acquisition, while the acquiring company may need to work with its investment bankers and advisors to come up with a more aggressive strategy. Additionally, the shareholders may have different opinions on the deal, and it is important for the acquiring company to communicate effectively with them to gain their support. Understanding the unique dynamics of each M&A case is crucial for identifying the key players and their roles.

Analyzing the Financial Aspects of a M&A Deal

Financial analysis is a critical step in evaluating M&A transactions. Companies need to conduct a thorough financial analysis to determine the value of the target company and the potential benefits of the acquisition. The financial analysis should consider the financial statements of both the acquiring and target companies, including income statements, balance sheets, and cash flow statements. Additional financial metrics such as net present value (NPV) and internal rate of return (IRR) can also be used to evaluate the financial viability of the transaction.

Another important aspect of financial analysis in M&A deals is the consideration of potential risks and uncertainties. Companies need to assess the potential risks associated with the acquisition, such as changes in market conditions, regulatory changes, and integration challenges. This analysis can help companies develop strategies to mitigate these risks and ensure a successful acquisition.

Furthermore, financial analysis can also help companies identify potential synergies between the acquiring and target companies. Synergies can arise from cost savings, revenue growth, and increased market share. By identifying these synergies, companies can better evaluate the potential benefits of the acquisition and develop a plan to realize these synergies post-merger.

Examining the Legal and Regulatory Implications of M&A Transactions

Legal and regulatory due diligence is a necessary step for any M&A transaction. Companies need to ensure that they comply with legal and regulatory requirements and that their transaction does not violate any antitrust, anti-bribery, or data protection laws. Legal and regulatory due diligence can also include assessing licenses, patents, and intellectual property rights.

Additionally, legal and regulatory due diligence can also involve reviewing the target company's contracts, leases, and other legal agreements to identify any potential liabilities or risks. This can include analyzing the terms of employment contracts, supplier agreements, and customer contracts to ensure that they are favorable and do not pose any legal or financial risks to the acquiring company. It is important for companies to conduct thorough legal and regulatory due diligence to avoid any legal or financial consequences that may arise from a poorly executed M&A transaction.

Assessing the Strategic Motivations for M&A Deals

Companies engage in M&A transactions for various strategic reasons such as increasing market share, diversifying the product portfolio, gaining access to new technologies, reducing costs, or achieving economies of scale. It is essential to assess the strategic motivations behind the transaction to determine if the deal makes sense and will add value to the acquiring company.

One of the most common strategic motivations for M&A deals is to gain access to new markets. By acquiring a company that has a strong presence in a particular market, the acquiring company can quickly establish itself in that market and gain a competitive advantage. This can be particularly beneficial for companies that are looking to expand internationally.

Another strategic motivation for M&A deals is to acquire talent. In some cases, a company may be interested in acquiring another company primarily for its employees. This can be especially true in industries where there is a shortage of skilled workers. By acquiring a company with a talented workforce, the acquiring company can quickly build its own team and gain a competitive advantage.

Evaluating the Risks and Benefits of M&A Transactions for Businesses

M&A transactions are not without risks. These risks include the integration of different corporate cultures and management styles, the potential loss of key employees, legal and regulatory compliance issues, and financial risks. On the other hand, M&A transactions can offer significant benefits such as improved market position, greater economies of scale, access to new technologies, and increased shareholder value. It is essential to evaluate the risks and benefits of M&A transactions for businesses and to mitigate risks to ensure a successful transaction.

Developing a Successful M&A Strategy: Tips and Best Practices

Developing a successful M&A strategy requires careful planning and execution. A well-designed strategy can help companies achieve their financial and strategic goals. Some best practices for developing a successful M&A strategy include conducting thorough due diligence, setting clear objectives, identifying potential risks, and developing a post-merger integration plan.

Real-World Examples of Successful M&A Deals and Lessons Learned

There are many examples of successful M&A transactions, including Disney's acquisition of Marvel Entertainment, Procter & Gamble's acquisition of Gillette, and Facebook's acquisition of WhatsApp. By studying these examples, we can learn valuable lessons about the factors that contribute to successful M&A transactions, including proper due diligence, clear strategic objectives, and effective post-merger integration plans.

Common Pitfalls to Avoid When Engaging in a M&A Transaction

M&A transactions can be complex, and there are several common pitfalls that businesses should avoid. These pitfalls include overvaluing the target company, inadequate due diligence, poor communication with stakeholders, and underestimating integration challenges. Avoiding these common pitfalls can help ensure a successful M&A transaction.

The Role of Due Diligence in M&A Case Studies: A Step-by-Step Guide

Due diligence is a critical component of any M&A transaction. Due diligence involves conducting a comprehensive review of the target company to assess its financial, legal, and operational status. A step-by-step guide to due diligence includes analyzing financial statements, reviewing contract agreements, assessing intellectual property rights, and evaluating employee relations and management processes.

How to Measure the Success of Your M&A Deal: Key Performance Indicators to Track

Measuring the success of an M&A transaction is essential to determine if the deal has added value to the acquiring company. Key performance indicators (KPIs) can help companies assess the success of the transaction. These KPIs include financial performance metrics such as revenue growth and profitability, market share, employee satisfaction, and customer satisfaction.

The Future of M&A: Trends, Innovations, and Challenges

The future of M&A transactions is rapidly evolving, driven by technological advancements, changing market conditions, and global economic shifts. Developments such as big data, artificial intelligence, blockchain, and cloud computing are transforming the way companies approach M&A transactions. As the business landscape continues to evolve, businesses will need to embrace innovation and adapt to new challenges to succeed in today's competitive market.

The M&A case study framework is complex, but by understanding the key factors that contribute to a successful transaction, companies can execute M&A deals that create long-term value. The critical success factors for M&A transactions include a well-designed M&A strategy, due diligence, proper financial analysis, and effective post-merger integration planning. By following best practices and learning from real-world examples, businesses can achieve their strategic and financial goals through M&A transactions.

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Lessons from Eight Successful M&A Turnarounds

November 12, 2018 By Ib Löfgrén , Lars Fæste , Tuukka Seppä , Jonas Cunningham , Niamh Dawson , Daniel Friedman , and Rüdiger Wolf

M&A is tough, especially when it involves an underperforming asset that needs a turnaround. About 40% of all deals, on average, require some kind of turnaround, whether because of minor problems or a full-blown crisis. With M&A valuations now at record levels, companies must pay higher prices simply to get a deal done. In this environment, leaders need a highly structured approach to put the odds in their favor.

The greatest M&A turnarounds

Automotive: groupe psa + opel, biopharmaceuticals: sanofi + genzyme, media: charter communications + time warner cable + bright house networks, industrial equipment: konecranes + mhps, retail grocery: coop norge + ica norway, shipbuilding: meyer werft + turku shipyard, retail: office depot + officemax, energy: vistra + dynegy.

We recently analyzed large turnaround deals—those in which the target was at least half the size of the buyer in terms of revenue, with the target’s profitability lagging its industry median by at least 30%. Our key finding was that these deals can be just as successful as smaller deals that don’t require a turnaround in terms of value creation. However, they have a much greater variation in outcomes. In other words, the risks are greater and the potential returns are also greater. Critically, our analysis identified four key factors that lead to success in turnaround deals.

1. These buyers use a “full potential” approach to identify all possible areas of improvement. Rather than merely integrating the target company to capture the most obvious synergies, a full-potential approach generates improvements to the target company, captures all synergies, and capitalizes on the opportunity to make needed upgrades to the acquirer as well. (See the exhibit.)

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2. These buyers have a clear rationale for how the deal will create value, and they take a structured, holistic approach:

They initially fund the journey by generating quick wins that deliver cash to the bottom line quickly, typically restructuring back-end operations to reduce costs and increase efficiency.
Then they pivot from cost-cutting to growth measures in order to win in the medium term. They revamp the portfolio, selling off some business units and assets and buying others that align with their strategic direction.
Finally, they invest in the future, often focusing on building digital businesses, upgrading processes with AI, and investing in R&D to secure long-term growth and expanding margins.

Winning buyers have a clear rationale, execute with rigor and speed, and address culture upfront.

3. Successful acquirers execute their plan with rigor and speed. They begin developing plans long before the deal closes, so that they can begin implementation on day one, seamlessly combining the core elements of post-merger integration and a turnaround program. These acquirers are extremely diligent in building clear milestones and objectives into the plan to ensure that key integration and improvement steps are achieved on time. Throughout the process, they move as quickly as possible, regarding speed as their friend. Moreover, they are confident enough to make their targets public and to systematically report on progress.

4. Winning acquirers address culture upfront by reorienting the organization around collaboration, accountability, and bottom-line value. Culture can often be hard to quantify or pin down, but it’s critical in shaping a company’s performance following an acquisition. (See Breaking the Culture Barrier in Postmerger Integrations , BCG Focus, January 2016.)

The case studies on the following pages illustrate these four principles. They offer clear evidence that M&A-based turnarounds may be hard but carry significant opportunity when done right.

Groupe PSA, the parent company of Peugeot, Citroën, Vauxhall Motors, and DS Automobiles, was languishing after the 2008 financial crisis. Demand was particularly slow to recover in Europe, which accounted for more than two-thirds of the company’s sales. After losing $5.4 billion in 2012 and $2.5 billion in 2013, Groupe PSA struck a deal to sell 14% of the company to Chinese competitor Dongfeng and another 14% to the French government, for $870 million each. With the capital raised, it launched a turnaround program in 2014. As part of the program, Groupe PSA bought the Opel brand, which had lost about $19 billion since 1999, from General Motors. The deal was finalized in August 2017.

The turnaround has a strong growth element with a focus on strengthening brands. A sales offensive was built on reducing the variety of models available, offering more attractive leases (possible thanks to the company’s stronger financial services capability), and maintaining discount discipline. Cost efficiency is another important element. Limiting the number of models reduces complexity across the combined group, which reduces costs in both manufacturing and R&D. The increased scale across fewer models leads to simpler procurement and more negotiating clout with suppliers.

The turnaround continued at a relentless pace through the first half of 2018, with profitability restored at Opel and margins continuing to rise for Groupe PSA as a whole.

Overall, gross margins have increased by 35% since 2013. During the same period, Groupe PSA has rebounded from losing money to an EBIT margin of 6%, in line with competitors such as General Motors and ahead of Hyundai and Kia. Perhaps most impressive, the company’s market cap has increased more than 700%. In all, the transformation has allowed Groupe PSA to resume its position as one of the top-performing automakers in the world.

Key success factors in this turnaround: Groupe PSA started the turnaround by raising capital to fund the journey. That enabled it to buy GM’s Opel unit, halt steep financial losses quickly, and generate a profit within one year of the acquisition.

Raising capital allowed Groupe PSA to buy GM’s Opel unit and generate a profit within one year.

In 2009, French pharmaceutical company Sanofi was in acquisition mode. Many of its products were losing patent protection, and the company wanted to shift from traditional drugs into biologics. One potential target was Genzyme.

From 2000 through 2010, Genzyme had grown rapidly, but manufacturing issues at two of its facilities halted production and led to a shortage of key drugs in its portfolio. Sales plunged, the US Food and Drug Administration issued fines, and investors called for management changes. But many features of the company still met Sanofi’s needs, including a lucrative orphan drug business with no patent cliff and a strong history of innovation. Sanofi made an offer: $20 billion, or $74 per share, which was roughly Genzyme’s value before the manufacturing problems hit.

Management laid out a bold ambition and moved fast. The company streamlined manufacturing, opening a new plant to reduce the drug shortage and simplifying operations to remove bottlenecks at existing plants. Next, it moved sales and marketing for some of Genzyme’s businesses, including oncology, biosurgery, and renal products, under the Sanofi brand. It also reduced the overall sales force by about 2,000 people.

Genzyme’s R&D pipeline was integrated into Sanofi, and a new portfolio review process led to the cessation of some studies and the reprioritizing of others. And about 30% of Genzyme’s cost base was reduced through the integration with Sanofi. Genzyme’s diagnostics unit was sold off, and about 8,000 full-time employees were eliminated in the EU and North America.

The moves generated positive results fast. Overall, the integration led to about $700 million in cost reductions through synergies. By 2011, the company was back in expansion mode with 5% revenue growth, increasing to 17% in 2012. Only about 13% of Sanofi’s revenue came from Genzyme products, but these were poised for strong growth, positioning Sanofi as a global leader in rare-disease therapeutics and spurring its evolution into a dominant player in biologics.

Key success factors in this turnaround: Sanofi laid out a bold ambition in its acquisition of Genzyme, and it executed a strategic repositioning with extreme speed, cutting costs and increasing top-line growth.

Genzyme executed a strategic repositioning with speed, cutting costs and increasing top-line growth.

With 8% of the US market in 2014, cable TV provider Charter Communications found itself facing fierce competition for multichannel video subscribers, who usually had bundled services with increasingly important broadband subscriptions. The threat came not only from other multichannel video providers in its markets—including direct-broadcast satellite services and large telcos—but from internet streaming services, as many cable subscribers were “cutting the cord” and streaming video over mobile and other devices.

To protect its market share and profits, Charter significantly expanded its subscriber base in 2015 by acquiring Time Warner Cable and Bright House Networks, which had a 20.8% and 3.6% share of the US cable market, respectively, paying $67 billion for the two businesses. The acquisitions made Charter the second-largest broadband provider and the third-largest multichannel video provider in the US.

With the deal closed, Charter launched a bold transformation that captured extensive synergies among the three businesses in areas such as overhead, product development, engineering, and IT, and it introduced uniform operating practices, pricing, and packaging. Most important, the company’s increased scale improved its bargaining power with content providers. Charter went beyond synergies in a full-potential plan to accelerate revenue growth, product development, and innovation through the increased scale, improved sales and marketing capabilities, and enhanced cable TV footprint brought about by the combination of the three companies. It improved products and services, centralized pricing decisions, and streamlined operations to achieve additional operating and capital efficiency.

As a result, Charter kept up its premerger growth trend and profitability, growing at an annual rate of 5.5% post-merger to reach $42 billion in revenues in 2017. In addition, Charter’s value creation significantly outperformed that of its peers, increasing annualized TSR to 289% from the closing of the transaction to the end of 2017.

Key success factors in this turnaround: Charter made a bold move in acquiring both Time Warner Cable and Bright House Networks. Management developed an extensive plan to generate operational synergies and rationalize the commercial offering of the new entity.

Charter developed an extensive plan to generate operational synergies and rationalize the new entity’s offering.

Konecranes is a global provider of industrial and port cranes equipment and services. Several years ago, in the face of increased competition, Konecranes was struggling to cut costs or grow organically. In 2016, it bought a business unit from Terex Corporation called Material Handling & Port Solutions (MHPS), its principal competitor. The MHPS business included several brands that complemented Konecranes’ products and services, along with some sizeable overlaps in technology and manufacturing networks.

Before the deal closed, Konecranes drafted an ambitious full-potential plan to generate about $160 million in synergies within three years through cost reductions and new business. That represented a 70% improvement over the joint company’s pro forma financials. The turnaround plan encompassed all main businesses and functions across both legacy Konecranes and MHPS operations.

As part of the preclose planning, Konecranes’ leaders designed an overall transformation to start after the merger was finalized. The program covered all business units and functions and was extremely comprehensive, including the following:

Reducing procurement spending through increased volumes
Consolidating service locations
Aligning technological standards and platforms
Closing some manufacturing sites
Streamlining corporate functions
Adopting more efficient processes
Optimizing the go-to-market approach
Identifying new avenues of growth

The full program consisted of 350 individual initiatives, organized into nine major work streams and aligned with the overall organization structure to create clear accountabilities and tie the program’s impact directly to financial results. Still, many of the initiatives were complex by nature, so solid planning and rigorous program management and reporting have been critical.

Konecranes also carried out a holistic baseline survey to assess the cultures of the two organizations and define a joint target culture. An extensive cultural development and communications plan featured strongly in the early days of the integration.

The company has reported on its progress to investors as part of its quarterly earnings calls, and two years into the three-year plan, it has hit or exceeded its targets. That performance has earned praise from investors, leading to a share price increase of more than 50% since the acquisition was announced.

Key success factors in this turnaround: The combination of competitors presented a clear opportunity to create value from synergies, but management took the more ambitious approach of using the deal as a catalyst for the combined entity to perform at its full potential. Hitting —and often exceeding—performance targets has led to a dramatic rise in the company’s stock price.

Konecranes used the deal as a catalyst for the combined entity to perform at its full potential.

Coop Norge ranked third in Norway’s competitive and consolidated retail-grocery landscape in 2014, with a 22.7% share. But the company faced a major strategic challenge from its two larger competitors, which were able to use their scale advantages to negotiate favorable prices from suppliers while opening new stores. A smaller player, ICA Norway, was in a more precarious position, with a 2014 operating loss of more than $57 million on revenue of $2.1 billion. An acquisition made sense. In buying ICA, Coop aimed to become the number-two player and so increase economies of scale in procurement and logistics. ICA stores in Norway were a strong strategic fit as well, complementing Coop’s existing locations.

After the acquisition closed, Coop rebranded all ICA supermarkets and discount stores to concentrate on fewer, winning formats and to fully leverage improvements and synergies in areas such as procurement, logistics, and store operations. Coop’s discount brand, Extra, was already showing good momentum in the market, and this was accelerated through the ICA Norway transaction.

The integration and rebranding created pride and momentum internally at ICA, which led to improved growth and financial performance at the acquiring company as well. Coop moved up to second place in the market, generated new economies of scale, and realized 87% of its expected results from synergies within just eight months of the close and 96% after two years. And because the company stayed true to its existing store strategy, it was able to lean on previous experience and maintain its long-term vision. Operating profits rose by approximately $270 million, from a loss of $160 million in 2015 to a profit of $106 million in 2016. Revenue during that period increased by 10.7%, to nearly $6 billion, of which ICA stores and Coop’s existing locations accounted for 7.8 and 2.9 percentage points, respectively.

Coop Norge’s early successes in the integration created strong momentum and a culture of success.

Key success factors in this turnaround: The early successes achieved in the integration created strong momentum and a culture of success, enabling the combined entity to increase both revenue and profits in a highly competitive market.

In the early 2010s, the global shipbuilding industry declined significantly, in part because of a contraction in the demand for ships. That left many shipyards—including the Turku yard, which operated in the sophisticated niche of cruise ships and ferries—in need of cash. When Turku’s owner, STX Finland, verged on insolvency in 2014, the Finnish government (which had a stake in STX) began looking for a new owner. Meyer Werft, a leading European shipbuilder, believed that the Turku shipyard could be operated profitably and bought 70% of the yard in September 2014. As part of the deal, Turku secured two new cruise ship projects. With the orders confirmed, Meyer Werft bought the remaining shares, becoming sole owner.

Renamed Meyer Turku Oy, the company began to integrate the shipyard’s operations and find synergies in development, procurement, and other support functions. Having negotiated up-front for new business, it was able to fill Turku’s production capacity, benefit from increased scale, and begin to boost profitability almost immediately. Critically, the deal helped restore trust among employees, which extended to other important stakeholders such as customers and lenders. Such trust is essential in an industry that hinges on building a small number of very large projects, and it was fostered by Meyer Werft’s delivery on promises right from the start.

Meyer Werft then looked to planning growth in the longer term: increasing capex to boost capacity—and profitability—still further and investing in a new crane, cabin production, and a new steel storage and pretreatment plant while modernizing existing equipment. It also entered into a joint R&D project with the University of Turku to develop more sustainable practices across a ship’s life cycle—from raw materials to manufacturing processes and beyond. And it hired 500 new workers, partially replacing retiring employees, in 2018.

As a result, the company increased revenues from $590 million in 2014 to $970 million in 2017, an annual growth rate of more than 18%. It also increased profit margins to 4% in 2017, up from a loss of 5% in the acquisition year. The company now has a stable order book out to 2024, and productivity continues to climb.

Key success factors in this turnaround: In addition to making operational improvements, Meyer Werft was able to foster trust among employees and customers by delivering on its promises and showing its commitment through long-term investment.

Meyer Werft fostered trust among employees and customers by delivering on its promises.

In early 2013, Office Depot and OfficeMax were in a similar situation: online retailers were threatening their business. They agreed on a merger, with the goal of generating synergies by reducing the cost of goods sold, consolidating support functions to cut overhead, and eliminating redundancies in the distribution and sales units.

Because the two companies were merging as equals—rather than one buying the other— some decisions were difficult to make before the close (for example, which IT system the combined entity would use and where headquarters would be located). But management was able to define synergy targets and begin planning the integration during the six months before the close. The companies also created an integration management office (IMO) that addressed areas that were critical for business continuity, specifying which units would be integrated and which would be left as is.

The IMO created playbooks for 15 integration teams, addressing finance, marketing, the supply chain, and e-commerce operations, and developed a plan for communication, talent management, and change management for the overall effort. It categorized all major decisions into two groups: those that could be made prior to the close (because the steering committee was aligned) and those that couldn’t be made during that period. For decisions in the second category, the IMO laid out the two or three best options to consider. Critically, the IMO’s rigorous plans included timelines for how the businesses would evolve over the first, second, and third years of the merger, helping to align functions and manage interdependencies.

Once the deal closed, all this preparation allowed the two organizations to start the integration process immediately on day one. Within weeks, they had agreed on a leadership team for the combined entity, a headquarters site, and an IT platform. The organization was largely redesigned in just two months—a remarkably rapid effort given that it ultimately affected about 9,000 employees.

Most important, the smooth integration process allowed the companies to be extremely rigorous in capturing more synergies—and doing it faster—than anticipated. For example, they integrated the e-commerce businesses in a way that allowed them to retain most key customers. In the first year after the deal closed, the company captured cost savings close to three times management’s original targets; cost savings of the end-state organization were 50% more. In all, the merger unlocked about $700 million, putting the new company in a much better competitive position.

An extremely rigorous integration plan allowed Office Depot and OfficeMax to exceed cost savings targets.

Key success factors in this turnaround: Office Depot and OfficeMax merged in response to the threat of online competition. An extremely rigorous integration plan allowed the combined business to dramatically exceed its cost savings targets.

Texas-based Vistra Energy operates in 12 US states and delivers energy to nearly 3 million customers, with a mix of natural gas, coal, nuclear, and solar facilities enabling about 41,000 megawatts of generation capacity. It was formed in October 2016 when its predecessor emerged from a protracted bankruptcy process.

At the conclusion of bankruptcy proceedings, Vistra underwent a corporate restructuring, moving from a siloed operating model to a unified organization with a centralized leadership team and common objectives. New governance structures facilitated more consistent and rigorous corporate decision making, with an emphasis on capital allocation and risk management. In addition, management immediately launched a turnaround effort to reduce costs and improve performance across the entire organization.

In all, the company managed to reduce costs and enhance EBITDA by approximately $400 million per year, exceeding its original target by $40 million without any drop in service levels or safety standards. At the same time, investments in new service offerings—many enabled by digital technology—boosted customer satisfaction.

In 2017, Vistra announced the acquisition of Dynegy, one of its largest peers, resulting in the largest competitive integrated power company in the US. The combined entity offers significant synergies, with Vistra now on track to deliver $500 million of additional EBITDA per year, along with annual after-tax free cash flow benefits of nearly $300 million and $1.7 billion in tax savings. The deal also allows Vistra to expand into new US markets, diversifying its operations and earnings, reducing its overall business risk, and creating a platform for future growth.

The addition of Dynegy also supports Vistra’s shift toward a more modern power generation fleet based on natural gas. The company preceded that deal with the acquisition of a large, gas-fueled power plant in west Texas, and it also retired several uneconomical coal-burning facilities. In all, Vistra’s generation profile has evolved from approximately two-thirds coal-fueled sources to more than 50% natural gas and renewables.

With these measures—a successful turnaround followed by two strategic acquisitions—Vistra has positioned itself to sustainably create value for its shareholders in a very competitive industry.

Key success factors in this turnaround: Vistra’s acquisition of Dynegy represented both a pivot to growth and an opportunity to extend cost savings to an acquired operating platform.

Managing Director & Partner

Managing Director & Senior Partner; Global Leader, BCG Transform Practice

Project Leader

Partner & Director, Change, Transaction & Integration Excellence

Managing Director & Senior Partner; Global Leader of Transactions & Integrations

Los Angeles

Managing Director & Senior Partner

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How a Nordic SaaS player unlocked potential in a global lockdown

A bold strategy and deep, multi-disciplined M&A experience turned “it can’t be done” into a sale that facilitated outstanding outcomes. Learn more.

The better the question

How can M&A strategy help regional business grow in a global crisis?

An initial approach from an acquiror turned into two deals to complete a reverse merger, and all during a global pandemic.

C onsignor, founded in 1997 by Peter Thomsen, had developed to become a leading Nordic Software as a Service (SaaS) player, offering multi-carrier parcel management systems to e-commerce businesses. However, in late 2019 Peter realized that the business lacked resources to take advantage of a significant developing global growth opportunity.

How EY can help

M&A due diligence consulting

Learn how EY M&A due diligence teams can help your business identify transaction value drivers, improve deal structures and mitigate risks.

An approach from a rival looked attractive, but Thomsen wasn’t ready to retire and leave the business. He had bigger ambitions, so he reached out to EY teams for advice.

“I saw a compelling strategic rationale in combining Consignor with my competitor and become a leading global force,” commented Peter Thomsen, CEO, Consignor. “It was going to take time to extract the benefits of the combination, so it was important for me to remain actively involved with the management of the business as much as possible. I was also worried about teaming up with a partner who had a shorter investment horizon than mine. EY advised me to ‘take control of the situation’ by finding the right investor to back Consignor’s growth ambitions, both organic and inorganic.”

EY and EY-Parthenon teams designed and began executing on a transaction process that would meet Peter Thomsen’s ambitions to find a financial backer for Consignor that would help maximize its value creation potential, while participating proactively in the market consolidation. And then the global pandemic was declared.

Yellow truck crossing bridge by waterfall in norway

The better the answer

A bold strategy, deep sector knowledge, and broad M&A capabilities were key

By being bold and innovative, EY teams transformed the bid process to create a smooth and engaging experience for seller and buyer alike.

Strategy consulting

EY-Parthenon professionals recognize that CEOs and business leaders are tasked with achieving maximum value for their organizations’ stakeholders in this transformative age. We challenge assumptions to design and deliver strategies that help improve profitability and long-term value.

EY teams were selected to support the whole of the sell-side mandate from strategy through to execution. The organization’s broad portfolio of experienced teams, including financial and tax, commercial, and technology professionals, in addition to the strength of their strategy practice of EY-Parthenon, were brought in to complete the full suite of due diligence requirements.

In March 2020, and as the World Health Organization declared a global pandemic, the preparation phase of EY process to find a PE buyer who could help Consignor secure their capital position and aid them to gain control to grow the business on their terms was well underway. Buyer interactions on the other hand had barely begun.

By this time the COVID-19 pandemic had gone global and the world had shut down. M&A activity ceased, debt markets shut down temporarily and economic activity dived globally. Despite this backdrop of intense uncertainty, EY teams and the leadership team at Consignor together took the view that due to Consignor’s exposure to the level of e-commerce activity that was surging during lockdown, revenues would hold up and the decision was made to move forward with the deal.

EY teams advised me to “take control of the situation” by finding the right investor to back Consignor’s growth ambitions.

Peter Thomsen

CEO, Consignor

Many may have challenged whether this was the right time to sell a valuable tech company, but Peter and the EY teams took a bold view that, as many other deals were put on ice, they’d be one of the only deals in the market. As such, they expected to capture a disproportionate level of attention among the target investor group.

Lockdown measures globally meant that there could be no in-person meetings or presentations to potential bidders — a major obstacle surely. But EY teams used this to create impactful, innovative video materials that accelerated and simplified the bidding process. Instead of the usual round of face-to-face presentations with interested parties, EY teams worked with the CEO to create a slick recording of the company presentation, that incorporated answers to pre-submitted questions. Once created the same presentation could be shared multiple times. “While we believed in our approach, because this had never been done before, we couldn’t be sure that we could attract commitment from a buyer without actually meeting the CEO,” says Eric Sanschagrin, EY EMEIA Head of Technology Transaction Advisory.

Speed and energy were critical. EY teams’ ability to draw on the wider organization’s capabilities, with its complementary services, meant it could perform the widest range of due diligence (financial, tax, commercial, technology) for its client at an expedited pace. Each team was project-managed and integrated to reduce the burden on the founder.

In the end the successful bidder, Francisco Partners, only required seven days of confirmatory due diligence before they signed. This happened just four months after EY teams were hired by Consignor, on a valuation of over NOK1 billion which was equivalent to EBITDA and revenue multiples at the top end of the range for similar transactions completed prior to the COVID-19 crisis. Peter reinvested a significant portion of the sale proceeds alongside Francisco Partners. The world was still in lockdown when the deal was inked.

The Fredvang Bridges in the setting sun, Lofoten, Norway

The better the world works

Intelligent M&A can transform the market, creating value for all

Not only did this deal win value for the client; it also smoothed the way for market consolidation across tech players in the Nordics.

This story doesn’t end with the successful sale of Consignor to a recognized leading technology PE firm. Within 6 months of completing the investment in Consignor, a merger was agreed between Consignor and its Swedish competitor Unifaun. This completed the story, achieving Peter Thomsen’s original objective of playing a proactive role in consolidating the sector and repositioning Consignor from a leading regional player to a global market leader. And who would lead the new combined entity as CEO? Consignor’s Peter Thomsen.

This story has a number of lessons.

First, deep knowledge and understanding of the market is an invaluable aid to a seller who benefits from a strategy that puts that market insight to work.
Second, never say “it can’t be done.” Courage to complete a major deal in the face of the pandemic won enormous value for the client.
Third, having a global, highly integrated organization with deep sector knowledge at your side to not only advise on appropriate strategic options, but who can help implement them, supports a transaction to be completed with speed and efficiency. For an owner-CEO, who has to continue running a business while selling it, this is a major benefit.

Ace Your M&A Case Study Using These 5 Key Steps

Last Updated November, 2022

Mergers and acquisitions (M&A) are high-stakes strategic decisions where a firm(s) decides to acquire or merge with another firm. As M&A transactions can have a huge impact on the financials of a business, consulting firms play a pivotal role in helping to identify M&A opportunities and to project the impact of these decisions.

M&A cases are common case types used in interviews at McKinsey, Bain, BCG, and other top management consulting firms. A typical M&A case study interview would start something like this:

The president of a national drugstore chain is considering acquiring a large, national health insurance provider. The merger would combine one company’s network of pharmacies and pharmacy management business with the health insurance operations of the other, vertically integrating the companies. He would like our help analyzing the potential benefits to customers and shareholders.

M&A cases are easy to tackle once you understand the framework and have practiced good cases. Keep reading for insights to help you ace your next M&A case study interview.

In this article, we’ll discuss:

Why mergers & acquisitions happen.
Real-world M&A examples and their implications.
How to approach an M&A case study interview.
An end-to-end M&A case study example.

Let’s get started!

Why Do Mergers & Acquisitions Happen?

There are many reasons for corporations to enter M&A transactions. They will vary based on each side of the table.

For the buyer, the reasons can be:

Driving revenue growth. As companies mature and their organic revenue growth (i.e., from their own business) slows, M&A becomes a key way to increase market share and enter new markets.
Strengthening market position. With a larger market share, companies can capture more of an industry’s profits through higher sales volumes and/or greater pricing power, while vertical integration (e.g., buying a supplier) allows for faster responses to changes in customer demand.
Capturing cost synergies. Large businesses can drive down input costs with scale economics as well as consolidate back-office operations to lower overhead costs. (Example of scale economies: larger corporations can negotiate higher discounts on the products and services they buy. Example of consolidated back-office operations: each organization may have 50 people in their finance department, but the combined organization might only need 70, eliminating 30 salaries.)
Undertaking PE deals. Private equity firms will buy a majority stake in a company to take control and transform the operations of the business (e.g., bring in new top management or fund growth to increase profitability).
Accessing new technology and top talent. This is especially common in highly competitive and innovation-driven industries such as technology and biotech.

For the seller, the reasons can be:

Accessing resources. A smaller business can benefit from the capabilities (e.g., product distribution or knowledge) of a larger business in driving growth.
Gaining needed liquidity. Businesses facing financial difficulties may look for a well-capitalized business to acquire them, alleviating the stress.
Creating shareholder exit opportunities . This is very common for startups where founders and investors want to liquidate their shares.

There are many other variables in the complex process of merging two companies. That’s why advisors are always needed to help management to make the best long-term decision.

Real-world Merger and Acquisition Examples and Their Implications

Let’s go through a couple recent merger and acquisition examples and briefly explain how they will impact the companies.

Nail the case & fit interview with strategies from former MBB Interviewers that have helped 89.6% of our clients pass the case interview.

KKR Acquisition of Ocean Yield

KKR, one of the largest private equity firms in the world, bought a 60% stake worth over $800 million in Ocean Yield, a Norwegian company operating in the ship leasing industry. KKR is expected to drive revenue growth (e.g., add-on acquisitions) and improve operational efficiency (e.g., reduce costs by moving some business operations to lower-cost countries) by leveraging its capital, network, and expertise. KKR will ultimately seek to profit from this investment by selling Ocean Yield or selling shares through an IPO.

ConocoPhillips Acquisition of Concho Resources

ConocoPhillips, one of the largest oil and gas companies in the world with a current market cap of $150 billion, acquired Concho Resources which also operates in oil and gas exploration and production in North America. The combination of the companies is expected to generate financial and operational benefits such as:

Provide access to low-cost oil and gas reserves which should improve investment returns.
Strengthen the balance sheet (cash position) to improve resilience through economic downturns.
Generate annual cost savings of $500 million.
Combine know-how and best practices in oil exploration and production operations and improve focus on ESG commitments (environmental, social, and governance).

How to Approach an M&A Case Study Interview

Like any other case interview, you want to spend the first few moments thinking through all the elements of the problem and structuring your approach. Also, there is no one right way to approach an M&A case but it should include the following:

Breakdown of value drivers (revenue growth and cost synergies)
Understanding of the investment cost
Understanding of the risks. (For example, if the newly formed company would be too large relative to its industry competitors, regulators might block a merger as anti-competitive.)

Example issue tree for an M&A case study:

Will the deal allow them to expand into new geographies or product categories?
Will each of the companies be able to cross-sell the others’ products?
Will they have more leverage over prices?
Will it lower input costs?
Decrease overhead costs?
How much will the investment cost?
Will the value of incremental revenues and/or cost savings generate incremental profit?
What is the payback period or IRR (internal rate of return)?
What are the regulatory risks that could prevent the transaction from occurring?
How will competitors react to the transaction?
What will be the impact on the morale of the employees? Is the deal going to impact the turnover rate?

An End-to-end BCG M&A Case Study Example

Case prompt:

Your client is the CEO of a major English soccer team. He’s called you while brimming with excitement after receiving news that Lionel Messi is looking for a new team. Players of Messi’s quality rarely become available and would surely improve any team. However, with COVID-19 restricting budgets, money is tight and the team needs to generate a return. He’d like you to figure out what the right amount of money to offer is.

First, you’ll need to ensure you understand the problem you need to solve in this M&A case by repeating it back to your interviewer. If you need a refresher on the 4 Steps to Solving a Consulting Case Interview , check out our guide.

Second, you’ll outline your approach to the case. Stop reading and consider how you’d structure your analysis of this case. After you outline your approach, read on and see what issues you addressed, and which you didn’t consider. Remember that you want your structure to be MECE and to have a couple of levels in your Issue Tree .

Example M&A Case Study Issue Tree

Revenue: What are the incremental ticket sales? Jersey sales? TV/ad revenues?
Costs: What are the acquisition fees and salary costs?
How will the competitors respond? Will this start a talent arms race?
Will his goal contribution (the core success metric for a soccer forward) stay high?
Age / Career Arc? – How many more years will he be able to play?
Will he want to come to this team?
Are there cheaper alternatives to recruiting Messi?
Language barriers?
Injury risk (could increase with age)
Could he ask to leave our club in a few years?
Style of play – Will he work well with the rest of the team?

Analysis of an M&A Case Study

After you outline the structure you’ll use to solve this case, your interviewer hands you an exhibit with information on recent transfers of top forwards.

In soccer transfers, the acquiring team must pay the player’s current team a transfer fee. They then negotiate a contract with the player.

From this exhibit, you see that the average transfer fee for forwards is multiple is about $5 million times the player’s goal contributions. You should also note that older players will trade at lower multiples because they will not continue playing for as long.

Based on this data, you’ll want to ask your interviewer how old Messi is and you’ll find out that he’s 35. We can say that Messi should be trading at 2-3x last season’s goal contributions. Ask for Messi’s goal contribution and will find out that it is 55 goals. We can conclude that Messi should trade at about $140 million.

Now that you understand the up-front costs of bringing Messi onto the team, you need to analyze the incremental revenue the team will gain.

Calculating Incremental Revenue in an M&A Case Example

In your conversation with your interviewer on the value Messi will bring to the team, you learn the following:

The team plays 25 home matches per year, with an average ticket price of $50. The stadium has 60,000 seats and is 83.33% full.
Each fan typically spends $10 on food and beverages.
TV rights are assigned based on popularity – the team currently receives $150 million per year in revenue.
Sponsors currently pay $50 million a year.
In the past, the team has sold 1 million jerseys for $100 each, but only receives a 25% margin.

Current Revenue Calculation:

Ticket revenues: 60,000 seats * 83.33% (5/6) fill rate * $50 ticket * 25 games = $62.5 million.
Food & beverage revenues: 60,000 seats * 83.33% * $10 food and beverage * 25 games = $12.5 million.
TV, streaming broadcast, and sponsorship revenues: Broadcast ($150 million) + Sponsorship ($50 million) = $200 million.
Jersey and merchandise revenues: 1 million jerseys * $100 jersey * 25% margin = $25 million.
Total revenues = $300 million.

You’ll need to ask questions about how acquiring Messi will change the team’s revenues. When you do, you’ll learn the following:

Given Messi’s significant commercial draw, the team would expect to sell out every home game, and charge $15 more per ticket.
Broadcast revenue would increase by 10% and sponsorship would double.
Last year, Messi had the highest-selling jersey in the world, selling 2 million units. The team expects to sell that many each year of his contract, but it would cannibalize 50% of their current jersey sales. Pricing and margins would remain the same.
Messi is the second highest-paid player in the world, with a salary of $100 million per year. His agents take a 10% fee annually.

Future Revenue Calculation:

60,000 seats * 100% fill rate * $65 ticket * 25 games = $97.5 million.
60,000 seats * 100% * $10 food and beverage * 25 games = $15 million.
Broadcast ($150 million*110% = $165 million) + Sponsorship ($100 million) = $265 million.
2 million new jerseys + 1 million old jerseys * (50% cannibalization rate) = 2.5 million total jerseys * $100 * 25% margin = $62.5 million.
Total revenues = $440 million.

This leads to incremental revenue of $140 million per year.

Next, we need to know the incremental annual profits. Messi will have a very high salary which is expected to be $110 million per year. This leads to incremental annual profits of $30 million.
With an upfront cost of $140 million and incremental annual profits of $30 million, the payback period for acquiring Messi is just under 5 years.

Presenting Your Recommendation in an M&A Case

Messi will require a transfer fee of approximately $140 million. The breakeven period is a little less than 5 years.
There are probably other financial opportunities that would pay back faster, but a player of the quality of Messi will boost the morale of the club and improve the quality of play, which should build the long-term value of the brand.
Further due diligence on incremental revenue potential.
Messi’s ability to play at the highest level for more than 5 years.
Potential for winning additional sponsorship deals.

5 Tips for Solving M&A Case Study Interviews

In this article, we’ve covered:

The rationale for M&A.
Recent M&A transactions and their implications.
The framework for solving M&A case interviews.
AnM&A case study example.

Still have questions?

If you have more questions about M&A case study interviews, leave them in the comments below. One of My Consulting Offer’s case coaches will answer them.

Other people prepping for mergers and acquisition cases found the following pages helpful:

Our Ultimate Guide to Case Interview Prep
Types of Case Interviews
Consulting Case Interview Examples
Market Entry Case Framework
Consulting Behavioral Interviews

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S T R E E T OF W A L L S

M&a case study: amazon and zappos.

In this Case Study module we will discuss three key aspects of understanding a real-life Mergers & Acquisitions (M&A) deal:

Company Overviews

Merger deal overview, valuation methods used.

We will take a deep look into the large M&A deal that took place in the eCommerce sector. In November 2009, Amazon, Inc. completed a previously announced acquisition of Zappos.com, Inc. Under the terms of the deal, Amazon paid Zappos.com’s shareholders approximately 10 million shares of Amazon stock (valued at $807 million at time the deal was announced) and $40 million in cash. The M&A deal was advised by investment banking teams at Morgan Stanley (Zappos) and Lazard (Amazon).

Amazon.com is a customer-centric company for three kinds of customers: consumers, sellers and enterprises. The Company serves consumers through its retail websites, and focus on selection, price, and convenience. It also provides easy-to-use functionality, fulfillment and customer service. Amazon is the largest online retailer in the nation, with revenues exceeding $45 billion annually.

Zappos.com was the #1 online seller of shoes at the time of the deal, stressing customer service. It stocks 3 million pairs of shoes, handbags, apparel and accessories, specializing in some 1,000 brands that are difficult to find in mainstream shopping malls. Through its website (and 7,000 affiliate partners), Zappos.com distributes stylish and moderately priced footwear to frustrated and shop-worn customers nationwide. In 2008, one year prior to the deal, Zappos reported annual revenues exceeding $630 million.

The following graphic illustrates the timeline of Amazon’s acquisition of Zappos, from the birth of the possible transaction until the deal’s closing:

M&A Deal Announced: In July 2009, Amazon announced that it had reached an agreement to acquire Zappos in a deal that was valued at $847 million. The Purchase Price of the deal was financed with approximately 10 million shares of Amazon common stock and $40 million of Cash and Restricted Stock units on the balance sheet.

M&A Deal Closed: In November 2009, Amazon announced that it had closed the previously announced acquisition of Zappos. Given the closing price of Amazon stock on the previous Friday (October 30, 2009), the deal was valued at approximately $1.2 billion (including fees).

Financial Advisors

Two investment banks are enrolled in the merger process. In April 2009, Zappos formally engaged Morgan Stanley as its lead financial advisor to a possible sale or strategic relationship. Throughout April, Lazard met with Amazon and ultimately became the buy-side advisor for the transaction.

Rationale for the Deal

Shortly after the deal was announced, Amazon filed an S-4 registration document with the SEC detailing the rationale of both parties for undertaking the deal. Their reasoning was as follows:

Amazon believed that there was a tremendous opportunity to grow the Zappos brand.
Zappos was interested in keeping its brand and culture intact, and Amazon supported its vision as an independent company.
Zappos felt it was in the best interest of shareholders to sell based on current valuations paid by Amazon.

Comparable Company Analysis

Morgan Stanley ran a Comparable Company Analysis as part of the valuation process when estimating the value of Zappos. Comparable Company Analysis is based on the idea that companies with similar characteristics should have approximately similar valuations. Morgan Stanley compared the financial information of Zappos to that of publicly traded Comparable Companies in the eCommerce space.

eCommerce companies used in Morgan Stanley’s Comparable Company Analysis included the following:

Selected Comparable Companies

Amazon.com, Inc.
Blue Nile Inc.
Digital River Inc.
GSI Commerce Inc.
Netflix, Inc.
OpenTable, Inc.
Overstock.com Inc.
VistaPrint Ltd.

For the analysis, Morgan Stanley looked at trading multiples in the eCommerce space for two key metrics of earnings: forward EBITDA (the ratio of Enterprise Value to next year’s expected Earnings Before Interest, Taxes, Depreciation & Amortization, or EBITDA) and forward Earnings (ratio of Equity Value to next year’s expected Net Income). Based on consensus estimates for calendar years 2009 and 2010, Morgan Stanley applied these ranges to the relevant Zappos financials.

M&A: Amazon/Zappos Valuation Ranges Graphic

Discounted Cash Flow Analysis

Morgan Stanley also calculated Equity Value ranges for Zappos based on Discounted Cash Flow (DCF) analysis . DCF models are often used in Investment Banking deals to value a company or asset using the time value of money concept. Expected future cash flows are discounted back to today to give the Net Present Value of those cash flows, which should approximate the current value of the underlying company or asset.

Components used in a DCF Analysis

Company’s Free Cash Flow (Morgan Stanley projected out 10 years)
Solving for Terminal Value of the Company (Morgan Stanley uses the Perpetuity Growth Rate approach)
Weighted Average Cost of Capital (Discount Rate for the Company’s Equity and Debt, appropriately weighted for the Company’s relative mix of Debt and Equity)

Morgan Stanley calculated a Terminal Value as of July 1, 2019 by applying a Perpetual Growth Rate range of 3-4% and a Discount Rate range of 12.5-17.5%. The projected Free Cash Flows (unlevered), Discount Rates, and implied Terminal Value were then used to solve for the Net Present Value of Zappos’ expected future cash flows. Based on the DCF projections, Morgan Stanley implied a Zappos Equity Value range of $1,555-2,785 million. The lower end of the sensitivity analysis implied a Zappos Equity Value of $430 million, so the deal value was within the sensitivity range.

Precedent Transactions Analysis

As part of the due-diligence process, Morgan Stanley also performed a Precedent Transaction Analysis to imply a value for the company using recent historical M&A transactions of similar companies. Precedent Transaction Analysis is based on the idea that recently acquired companies with similar characteristics should provide a solid guideline for a reasonable Purchase Price for the given Target company (in this case, Zappos).

Morgan Stanley researched publicly available M&A transactions looking at deal multiples in the Internet sector with a buyout of $250 million or more since January 2008. The following is a list of the transactions that Morgan Stanley analyzed:

Selected Precedent Transactions (Target/Acquirer)

Gmarket Inc./eBay Inc.
Bill Me Later, Inc./eBay Inc.
Greenfied Online Inc./Microsoft Corporation
Bebo, Inc./Time Warner Inc.
CNET Networks, Inc./CBS Corporation
Audible, Inc./Amazon.com, Inc.

Using the transactions chosen, Morgan Stanley selected ranges of deal multiples and applied those ranges of multiples to the appropriate Zappos financials. Morgan Stanley applied a next-twelve-month (NTM) EBITDA range of approximately 15-30x to Zappos financials, which implied an Equity Value range of $530-1,120 million. Morgan Stanley applied a last-twelve-month (LTM) EBITDA range of approximately 25-75x, implying an Equity Value range of $270-885 million.

Historical Stock Price & Next Twelve Months (NTM) Multiple Analysis

Morgan Stanley also reviewed Amazon’s stock price performance relative to an eCommerce index, an Internet Bellwether Index, and the NASDAQ over various periods of time. The following companies comprised the eCommerce index:

eCommerce Index Components

Overstock.com, Inc.

The following companies comprised the Internet Bellwether index:

Internet Bellwether Index Components

Google Inc.
Yahoo! Inc.

The table below shows Morgan Stanley’s analysis of stock price performance for these selected metrics:

Morgan Stanley then looked at recent trading multiples compared to next-twelve-months (NTM) Earnings Per Share and NTM EBITDA, as well as implied stock prices using these multiples, based on current NTM financials for Amazon. Morgan Stanley commented that over the period Amazon stock traded at an NTM Price/Earnings multiple range of 21.9-94.4x and an NTM EBITDA range of 8.2-32.5x.

Footnote: Selected Zappos.com, Inc. Financial Results

Hacking the Case Interview

Merger & acquisition (M&A) cases are a common type of case you’ll see in consulting interviews. You are likely to see at least one M&A case in your upcoming interviews, especially at consulting firms that have a large M&A or private equity practice.

These cases are fairly straight forward and predictable, so once you’ve done a few cases, you’ll be able to solve any M&A case.

In this article, we’ll cover:

Two types of merger & acquisition case interviews
The five steps to solve any M&A case
The perfect M&A case interview framework
Merger & acquisition case interview examples
Recommended M&A case interview resources

If you’re looking for a step-by-step shortcut to learn case interviews quickly, enroll in our case interview course . These insider strategies from a former Bain interviewer helped 30,000+ land consulting offers while saving hundreds of hours of prep time.

Two Types of Merger & Acquisition Case Interviews

A merger is a business transaction that unites two companies into a new and single entity. Typically, the two companies merging are roughly the same size. After the merger, the two companies are no longer separately owned and operated. They are owned by a single entity.

An acquisition is a business transaction in which one company purchases full control of another company. Following the acquisition, the company being purchased will dissolve and cease to exist. The new owner of the company will absorb all of the acquired company’s assets and liabilities.

There are two types of M&A cases you’ll see in consulting case interviews:

A company acquiring or merging with another company

A private equity firm acquiring a company, also called a private equity case interview

The first type of M&A case is the most common. A company is deciding whether to acquire or merge with another company.

Example: Walmart is a large retail corporation that operates a chain of supermarkets, department stores, and grocery stores. They are considering acquiring a company that provides an online platform for small businesses to sell their products. Should they make this acquisition?

There are many reasons why a company would want to acquire or merge with another company. In making an acquisition or merger, a company may be trying to:

Gain access to the other company’s customers
Gain access to the other company’s distribution channels
Acquire intellectual property, proprietary technology, or other assets
Realize cost synergies
Acquire talent
Remove a competitor from the market
Diversify sources of revenue

A private equity firm acquiring a company

The second type of M&A case is a private equity firm deciding whether to acquire a company. This type of M&A case is slightly different from the first type because private equity firms don’t operate like traditional businesses.

Private equity firms are investment management companies that use investor money to acquire companies in the hopes of generating a high return on investment.

After acquiring a company, a private equity firm will try to improve the company’s operations and drive growth. After a number of years, the firm will look to sell the acquired company for a higher price than what it was originally purchased for.

Example: A private equity firm is considering acquiring a national chain of tattoo parlors. Should they make this investment?

There are a few different reasons why a private equity firm would acquire a company. By investing in a company, the private equity firm may be trying to:

Generate a high return on investment
Diversify its portfolio of companies to reduce risk
Realize synergies with other companies that the firm owns

Regardless of which type of M&A case you get, they both can be solved using the same five step approach.

The Five Steps to Solve Any M&A Case Interview

Step One: Understand the reason for the acquisition

The first step to solve any M&A case is to understand the primary reason behind making the acquisition. The three most common reasons are:

The company wants to generate a high return on investment
The company wants to acquire intellectual property, proprietary technology, or other assets
The company wants to realize revenue or cost synergies

Knowing the reason for the acquisition is necessary to have the context to properly assess whether the acquisition should be made.

Step Two: Quantify the specific goal or target

When you understand the reason for the acquisition, identify what the specific goal or target is. Try to use numbers to quantify the metric for success.

For example, if the company wants a high return on investment, what ROI are they targeting? If the company wants to realize revenue synergies, how much of a revenue increase are they expecting?

Depending on the case, some goals or targets may not be quantifiable. For example, if the company is looking to diversify its revenue sources, this is not easily quantifiable.

Step Three: Create a M&A framework and work through the case

With the specific goal or target in mind, structure a framework to help guide you through the case. Your framework should include all of the important areas or questions you need to explore in order to determine whether the company should make the acquisition.

We’ll cover the perfect M&A framework in the next section of the article, but to summarize, there are four major areas in your framework:

Market attractiveness : Is the market that the acquisition target plays in attractive?

Company attractiveness : Is the acquisition target an attractive company?

Synergies : Are there significant revenue and cost synergies that can be realized?

Financial implications : What are the expected financial gains or return on investment from this acquisition?

Step Four: Consider risks OR consider alternative acquisition targets

Your M&A case framework will help you investigate the right things to develop a hypothesis for whether or not the company should make the acquisition.

The next step in completing an M&A case depends on whether you are leaning towards recommending making the acquisition or recommending not making the acquisition.

If you are leaning towards recommending making the acquisition…

Explore the potential risks of the acquisition.

How will the acquisition affect existing customers? Will it be difficult to integrate the two companies? How will competitors react to this acquisition?

If there are significant risks, this may change the recommendation that you have.

If you are leaning towards NOT recommending making the acquisition…

Consider other potential acquisition targets.

Remember that there is always an opportunity cost when a company makes an acquisition. The money spent on making the acquisition could be spent on something else.

Is there another acquisition target that the company should pursue instead? Are there other projects or investments that are better to pursue? These ideas can be included as next steps in your recommendation.

Step Five: Deliver a recommendation and propose next steps

At this point, you will have explored all of the important areas and answered all of the major questions needed to solve the case. Now it is time to put together all of the work that you have done into a recommendation.

Structure your recommendation in the following way so that it is clear and concise:

State your overall recommendation firmly
Provide three reasons that support your recommendation
Propose potential next steps to explore

The Perfect M&A Case Interview Framework

The perfect M&A case framework breaks down the complex question of whether or not the company should make the acquisition into smaller and more manageable questions.

You should always aspire to create a tailored framework that is specific to the case that you are solving. Do not rely on using memorized frameworks because they do not always work given the specific context provided.

For merger and acquisition cases, there are four major areas that are the most important.

1. Market attractiveness

For this area of your framework, the overall question you are trying to answer is whether the market that the acquisition target plays in is attractive. There are a number of different factors to consider when assessing the market attractiveness:

What is the market size?
What is the market growth rate?
What are average profit margins in the market?
How available and strong are substitutes?
How strong is supplier power?
How strong is buyer power?
How high are barriers to entry?

2. Company attractiveness

For this area of your framework, the overall question you want to answer is whether the acquisition target is an attractive company. To assess this, you can look at the following questions:

Is the company profitable?
How quickly is the company growing?
Does the company have any competitive advantages?
Does the company have significant differentiation from competitors?

3. Synergies

For this area of your framework, the overall question you are trying to answer is whether there are significant synergies that can be realized from the acquisition.

There are two types of synergies:

Revenue synergies
Cost synergies

Revenue synergies help the company increase revenues. Examples of revenue synergies include accessing new distribution channels, accessing new customer segments, cross-selling products, up-selling products, and bundling products together.

Cost synergies help the company reduce overall costs. Examples of cost synergies include consolidating redundant costs and having increased buyer power.

4. Financial implications

For this area of your framework, the main question you are trying to answer is whether the expected financial gains or return on investment justifies the acquisition price.

To do this, you may need to answer the following questions:

Is the acquisition price fair?
How long will it take to break even on the acquisition price?
What is the expected increase in annual revenue?
What are the expected cost savings?
What is the projected return on investment?

Merger & Acquisition Case Interview Examples

Let’s put our strategy and framework for M&A cases into practice by going through an example.

M&A case example: Your client is the second largest fast food restaurant chain in the United States, specializing in serving burgers and fries. As part of their growth strategy, they are considering acquiring Chicken Express, a fast food chain that specializes in serving chicken sandwiches. You have been hired to advise on whether this acquisition should be made.

To solve this case, we’ll go through the five steps we outlined above.

The case mentions that the acquisition is part of the client’s growth strategy. However, it is unclear what kind of growth the client is pursuing.

Are they looking to grow revenues? Are they looking to grow profits? Are they looking to grow their number of locations? We need to ask a clarifying question to the interviewer to understand the reason behind the potential acquisition.

Question: Why is our client looking to make an acquisition? Are they trying to grow revenues, profits, or something else?

Answer: The client is looking to grow profits.

Now that we understand why the client is considering acquiring Chicken Express, we need to quantify what the specific goal or target is. Is there a particular profit number that the client is trying to reach?

We’ll need to ask the interviewer another question to identify this.

Question: Is there a specific profit figure that the client is trying to reach within a specified time period?

Answer: The client is trying to increase annual profits by at least $200M by the end of the first year following the acquisition.

With this specific goal in mind, we need to structure a framework to identify all of the important and relevant areas and questions to explore. We can use market attractiveness, company attractiveness, synergies, and financial implications as the four broad areas of our framework.

We’ll need to identify and select the most important questions to answer in each of these areas. One potential framework could look like the following:

Merger & Acquisition Case Interview Framework Example

Let’s fast forward through this case and say that you have identified the following key takeaways from exploring the various areas in your framework:

Chicken Express has been growing at 8% per year over the past five years while the fast food industry has been growing at 3% per year
Among fast food chains, Chicken Express has the highest customer satisfaction score
Revenue synergies would increase annual profit by $175M. This is driven by leveraging the Chicken Express brand name to increase traffic to existing locations
Cost synergies would decrease annual costs by $50M due to increased buyer power following the acquisition

At this point, we are leaning towards recommending that our client acquire Chicken Express. To strengthen our hypothesis, we need to explore the potential risks of the acquisition.

Can the two companies be integrated smoothly? Is there a risk of sales cannibalization between the two fast food chains? How will competitors react to this acquisition?

For this case, let’s say that we have investigated these risks and have concluded that none of them pose a significant threat to achieving the client’s goals of increasing annual profit by $200M.

We’ll now synthesize the work we have done so far and provide a clear and concise recommendation. One potential recommendation may look like the following:

I recommend that our client acquires Chicken Express. There are three reasons that support this.

One, Chicken Express is an attractive acquisition target. They are growing significantly faster than the fast food industry average and have the highest customer satisfaction scores among fast food chains.

Two, revenue synergies would increase annual profit by $175M. The client can leverage the brand name of Chicken Express to drive an increase in traffic to existing locations.

Three, cost synergies would decrease annual costs by $50M. This is due to an increase in buyer power following the acquisition.

Therefore, our client will be able to achieve its goal of increasing annual profits by at least $200M. For next steps, I’d like to assess the acquisition price to determine whether it is reasonable and fair.

More M&A case interview practice

Follow along with the video below for another merger and acquisition case interview example.

For more practice, check out our article on 23 MBA consulting casebooks with 700+ free practice cases .

In addition to M&A case interviews, we also have additional step-by-step guides to: profitability case interviews , market entry case interviews , growth strategy case interviews , pricing case interviews , operations case interviews , and marketing case interviews .

Recommended M&A Case Interview Resources

Here are the resources we recommend to learn the most robust, effective case interview strategies in the least time-consuming way:

Comprehensive Case Interview Course (our #1 recommendation): The only resource you need. Whether you have no business background, rusty math skills, or are short on time, this step-by-step course will transform you into a top 1% caser that lands multiple consulting offers.
Hacking the Case Interview Book (available on Amazon): Perfect for beginners that are short on time. Transform yourself from a stressed-out case interview newbie to a confident intermediate in under a week. Some readers finish this book in a day and can already tackle tough cases.
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After the deal: recent cases and trends in M&A disputes

Global | Publication | March 2018

Introduction

Indemnities.

For some years, the sense has been that a significant proportion of the Commercial and Chancery Division’s time has been taken up by disputes arising from private M&A transactions. This is a broad category, covering not only breach of warranty, indemnity and price adjustment issues, but also claims involving tax covenants, fraud and other matters. Until recently, however, there has been little or no quantitative data on the incidence of this type of dispute.

In March 2017, one of the biggest warranty and indemnity (W&I) insurers globally, AIG, published its study on the incidence of claims notifications under policies that it had issued. A now well-established feature of M&A deals, W&I insurance provides cover to buyers and sellers for claims arising from breaches of representations and warranties given in the sale and purchase agreement (SPA). The results of AIG’s study with the latest edition due to be released in the coming months– now in its third year – are revealing. In the period covered by the study (policies issued from 2011 to 2015) the overall claims frequency was 18 per cent, up from 14 per cent, with claims being made under approximately one in four of policies issued for deals worth over US$1 billion. As these figures only reflect AIG’s (primarily) breach of warranty claims experience, it is not too much of a stretch to conclude that, annually, there must be large numbers of M&A disputes which are settled pre-action or when proceedings are on foot.

However, frequency of claims is only part of the story; it is also instructive to consider the types of issue which the Courts are being asked to consider. In this article, we attempt to do just that, by reviewing the reported cases in this area in the past two years.

Price adjustment disputes

Arguably the most high profile cases have concerned deferred consideration mechanisms. In the first such case, Starbev GP Ltd v Interbrew Central European Holdings BV [2016] EWCA Civ 449, the question was whether the seller was entitled to a proportion of the profit realised by the buyer, when the business was sold on within a period of three years. The answer to this question had very considerable financial consequences: whereas the original sale price had been €1.475 billion, the on-sale price was €2.65 billion, with the seller claiming approximately €129 million of the difference. In addition to a number of clauses providing how the seller’s “Contingent Value Right” was to be calculated, the SPA contained an anti-avoidance clause. The buyer structured €500 million of the consideration due to the on-purchaser in the form of a Convertible Note, which it subsequently drew down on when the three year period had expired. The Court of Appeal confirmed that this transaction was caught by the antiavoidance clause on the basis it applied where the dominant purpose of the transaction was to reduce the seller’s Contingent Value Right.

In the same area, Team Y&R Holdings Hong Kong Ltd & Ors v Ghossoub [2017] EWHC 2401 (Comm) concerned an SPA provision whereby, post-completion, any seller whose employment with the target company was terminated for acts of gross misconduct, or who engaged in a competing business, would lose his right to deferred consideration and be compelled to sell his retained shares to the buyer at a substantial discount (the “Defaulting Shareholder Clauses”). While this judgment concerned jurisdictional issues, the enforceability of the Defaulting Shareholder Clauses had already been considered by the Supreme Court in Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67. In that case, the other seller in the same transaction had argued that the Defaulting Shareholder Clauses were void and unenforceable as penalties. Having re-cast the law on penalties, the Supreme Court held that neither clause was a penalty (being neither a secondary provision nor intended to punish the seller).

Moving on to indemnities, Wood v Capita Insurance Services Ltd [2017] UKSC 24 is another M&A dispute to have reached the Supreme Court, due to an argument by the buyer that the Court of Appeal had wrongly applied the recent Supreme Court guidance on contractual interpretation, falling into error by placing too much emphasis on the words of the SPA while giving insufficient weight to the factual matrix. The case is now cited as a leading contract law case, but the central issue was whether “an opaque provision which … could have been drafted more clearly” required the seller to indemnify the buyer for compensation which, post-completion, the FSA (as it was) required the target company to pay customers who may have been mis-sold insurance products. The other possibility, contended for by the buyer, was that only actual complaints triggered the indemnity. Having carefully examined the language used in the SPA, the Supreme Court found for the seller. Notably, Lord Hodge also observed that, in addition to the indemnity, the buyer had the benefit of time-limited warranties that the target company had complied with its regulatory obligations, which the buyer might have relied on but – for whatever reason – did not.

In First Names (Jersey) Limited & Anor v IFG Group Plc [2017] EWHC 3014 (Comm), the question was again whether an indemnity had been triggered. In contrast to Wood, the construction of the indemnity clause was not in issue: it was a straightforward indemnity in respect of litigation and other proceedings arising from facts, matters or circumstances existing prior to completion. Instead, the main issue was whether the buyer had complied with (1) the notice requirements and (2) the time limit for starting proceedings after the contingent liability for which it was claiming became actual. The Court found for the buyer. However, on the breach of warranty side, there are a number of examples of buyers falling foul of similar notice clauses.

Breach of warranty

Notice issues

Where claims for breach of warranty are concerned, most – if not all – SPAs provide that claims must be notified within a specified period after completion, and that the notice must furnish the seller with enough information to understand the basis of the claim. There is also usually a further requirement that the buyer initiates court proceedings within a prescribed period after notification (typically a number of months). The judicially recognised commercial purpose of such clauses is to give the seller certainty not only that a claim may be brought, but of the grounds on which the claim is to be based. Strict compliance with contractual notice requirements is also not a trivial or technical matter, and the Courts give little latitude to buyers who serve a non-compliant notice, or fail to serve the notice in accordance with the SPA.

In 2015, in Ipsos S.A. v Dentsu Aegis Network Ltd [2015] EWHC 1171 (Comm), the Court ruled – for the first time in a while – that an effective claim notice had not been served. This has now been followed by two further examples of buyers getting it wrong: in 2016, in Teoco UK Ltd v Aircom Jersey 4 Ltd & Anor [2018] EWCA Civ 23, and in 2017, in Zayo Group International Ltd v Ainger & Ors [2017] EWHC 2542 (Comm). In Teoco, the buyer’s notices were invalid because they did not purport to make a claim; rather, they indicated that the buyer had or may have claims which it might make in the future (a fine, but important, distinction). They also did not identify the warranties that had been breached.

In Zayo , by contrast, the buyer’s notices were found to be defective because they did not give a reasonable estimate of the amount claimed (as the notice clause required). The particular problem with the notices was that the sums claimed did not reflect the correct measure of loss for breaches of warranty (i.e. the diminution in value of the shares). The judge emphasised that this was not a technical point: a clear warning to those responsible for drafting claim notices that simply identifying the sums paid out, on a pound-for-pound basis, without referring to the proper measure of loss may cause serious difficulty.

It is also a common feature of notice clauses that they require the buyer to give notice “as soon as reasonably practicable” upon becoming aware that it has a claim, and sometimes within a specified period of days. This type of provision was addressed in both Nobahar-Cookson & Ors v The Hut Group Ltd [2016] EWCA Civ 128 and Teoco. In Nobahar, the Court of Appeal stressed that a notification clause which imposes a contractual time limit is a species of exclusion clause, and therefore to be construed narrowly if ambiguous. It went on to decide (in favour of the buyer) that a clause requiring notice to be given “within 20 Days after becoming aware of the matter” meant that the buyer had to be aware of the claim itself, as opposed to the underlying facts. In Teoco, the Court applied the approach in Nobahar to find that the buyer – in addition to the invalidity of its notices – had failed to make its claims for various tax warranty breaches as soon as reasonably practicable after becoming aware of them.

In Zayo , however, there was a further issue arising from the manner in which the buyer had attempted to effect service on one of the Management Vendors. There, the SPA provided that none of the Management Vendors would have any liability “except in circumstances where the Purchaser gives notice to the Management Vendors before the date that is eighteen months of [sic] Completion.” When a courier tasked with delivering the notice to one of the Management Vendors on the last possible date for delivery, at the address given in the SPA, was told that the Management Vendor had moved, he opted not to deliver it. The Court rejected the buyer’s argument that, in such circumstances, the SPA contained an implied term that the buyer discharged its obligation by attempting to effect delivery, holding that the courier should have left the notice at the address in order to comply with the SPA’s service provisions. The Court also found that the buyers’ claims against the other Management Vendors (who had been served) were compromised, because the clause required all Management Vendors to be notified. While the result may seem harsh, it does very clearly demonstrate the rigour with which the Courts construe and apply notice clauses.

Substantive issues

While notice clauses may have been prominent, substantive breach of warranty issues have also featured. Perhaps the best recent example is Kitcatt and others v MMS UK Holdings Ltd & Anor [2017] EWHC 675 (Comm). There, the acquisition had been structured as an “earn-out”, meaning that the overall consideration to be paid to the sellers was linked to the performance of the target company (an advertising agency) post-completion. The buyer also gave certain warranties to the sellers confirming that they were unaware of any matters – including issues with customers – that might have a material adverse impact on the revenue of the business into which the target company would be merged (on which the earn-out thus depended). After the sale, the amount of work which the merged agency obtained from a major client reduced to such an extent that no deferred consideration was payable. The buyer sued the sellers, successfully overcoming a defence that the warranty was too uncertain to be enforceable. The Court also found that the breach of warranty was irrelevant, because a subsequent agreement had been reached that a specific amount would be paid to the sellers by way of deferred consideration, varying the SPA.

In addition to the issues already discussed, Zayo considered the effect of an exclusion on the Management Vendors’ liability “to the extent that provision or reserve in respect of the liability or other matter giving rise to the claim in question was made in the Accounts.” The seller’s position was that the exclusion applied regardless or whether the provision was or was not adequate. Perhaps surprisingly, the Court agreed, finding that the words “to the extent that” did not entail that the Management Vendors’ liability was reduced by the amount of the provision; a conclusion which possibly owed more to considerations of business common sense than to the words actually used. At this point, we should also briefly revisit the AIG study which gives a helpful breakdown as to the type of breaches of warranty relied on in the notifications AIG has received, the four main categories being: Financial Statements (20 per cent); Compliance with Laws (15 per cent); Material Contracts (14 per cent); and Tax (14 per cent). The far more limited number of breach of warranty cases covered in this article all fall into these categories: Financial Statements ( Nobahar, Zayo ), Tax ( Teoco ) and Material Contracts ( Kitcatt – just about). Historically, Financial Statements warranties have been a particularly prominent feature of reported breach of warranty cases, and the recent claims experience – from AIG, more usefully, but also from the Courts – would suggest this trend is likely to continue.

Tax covenants

Two tax covenant cases gave rise to Court judgments in 2017: Atheer Telecom Iraq Limited v Orascom Telecom Iraq Corp Limited [2017] EWHC 279 (Comm), which went the distance, and Takeda Pharmaceutical Ltd v Fougera Sweden Holding 2 AB [2017] EWHC 1402 (Ch), which was an application for an expedited trial or preliminary issue.

In Atheer , the SPA contained a covenant by the seller to pay any tax liability incurred by the target company – a telecommunications business – arising “on or before Closing”. Some years after the deal, the Iraq tax authority issued a number of tax demands and, while there was some doubt as to whether the assessments were properly made, the fact that they related to pre-Closing earnings meant that the covenant was engaged. Under the covenant, the seller was also required to pay tax demands for which the target company was “finally liable”, but the facts that (1) no tax had yet been paid and (2) the tax authority was not pressing for payment were held not to matter. There was also a question whether the buyer’s admitted dishonesty in related proceedings in Iraq engaged certain exclusions in the SPA. However, as the dishonesty came after the tax demands – and so had no causative effect – it was irrelevant.

As for Takeda , the situation at the time of the hearing (May 2017) was that the Danish tax authority had referred certain questions to the CJEU which could result in the target company facing a significant withholding tax liability. However, the tax covenant in the SPA was due to expire in September 2017 and, in order to reach an accommodation with the tax authority before that date, the buyer required certain information from the seller. The buyer was therefore pressing for the extent of the seller’s duties to provide information to be decided on an expedited basis or as a preliminary issue. The Court ordered the latter.

Trends and possibilities

As these cases show, in recent times the Courts have seen a good number of M&A disputes, on a wide range of issues. There are also others which have not been considered here: for example CPL Ltd v CPL Opco ( Trinidad ) Ltd & Anor [2017] EWHC 3399 (Ch) (concerning an alleged collateral contract, and whether it was caught by the SPA’s entire agreement clause) and Philp & Anor v Cook [2017] EWHC 3023 (QB) (where a buyer tried to circumvent a notice clause by alleging a breach of warranty by way of set-off). All of these cases demonstrate that private M&A transactions continue to provide fertile ground for disputes, and for the development of English contract law (referring, in particular, to Cavendish and Wood ).

As our corporate colleagues reported recently 1 , despite considerable geopolitical and economic uncertainty, 2016 recorded one of the highest aggregate annual deal values in recent years. As for 2017, the statistics for the first nine months were less positive, but with variations in activity regionally and by sector, and M&A into the UK as high as it has ever been. With all of this activity, the historical experience suggests that 2018 will be another busy year for M&A disputes – perhaps more so as third party funding becomes an increasingly regular and familiar feature of the litigation landscape.

As for the types of dispute that we may see, in addition to the typically wide range of issues that is likely to emerge, it is possible that cyber exposures could become the next area of focus. Recent English case law has brought into focus the possibility of companies incurring substantial liabilities as a result of adverse cyber incidents. In 2016, Vidal-Hall v Google, Inc. [2015] EWCA Civ 311 established that tort claims for misuse of private information and claims under the Data Protection Act may be brought even in circumstances where claimants have not suffered any pecuniary loss. More recently, in December 2017 the High Court found (in Various Claimants v WM Morrisons Supermarket plc , [2017] EWHC 3113 (QB)) that a company can be held vicariously liable for data breaches caused by malicious employees in a broad range of circumstances (although time will tell whether this decision will survive the appeals process). Cyber incidents leading to liabilities of this nature may not be known to the parties – or their implications may not be fully understood – at the time of an acquisition. This make them potential fodder for M&A disputes once the deal has gone through and the implications of a cyber incident start to emerge. Disputes of this nature may centre around breaches of warranty or indemnity claims (to the extent specific warranties or indemnities are given in an SPA related to cyber risk or data security) or around consideration adjustments – recent high-profile data breaches at listed companies, for example, have demonstrated that cyber issues can have a significant impact on a company’s market valuation.

M&A Outlook , Norton Rose Fulbright LLP, January 2018

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Realizing M&A value creation in US banking and fintech: Nine steps for success

Co-leads McKinsey’s Global Banking & Securities Practice and our work in North America. Ishaan works with clients across financial services and private equity. His client service spans strategy, corporate finance, digital and analytics, performance transformation, and M&A.

Advises financial institutions on capital markets, valuation, investor communications, and strategy topics

Serves leading financial institutions on strategy and M&A throughout the deal cycle – from due diligence through integration. He co-leads McKinsey's banking M&A joint venture globally. Max also works intensively with fintechs and leads the Fintech Practice in Germany

Leads McKinsey’s Global M&A and Banking/Fintech service line, with extensive experience in counseling senior executives on and leading due diligence and integrations in FIG, Fintech and TMT sectors

November 15, 2019 For almost a decade after the financial crisis, M&A activity in the US banking industry remained limited, as many banks wrestled with challenging integrations and “shot-gun” combinations. But deal-making bounced back in 2018 and looks likely to expand. While several factors favor that growth, would-be deal-makers face obstacles. Our analysis suggests that most US bank mergers from that decade failed to create value. Going forward, US banks will require a smart strategy and the right integration approach to fully realize the value creation potential in M&A.

US banking M&A is on the upswing

US banking M&A was relatively flat from 2009 to 2017; the industry averaged about 20 deals a year. But in 2018 activity more than doubled, as US banks completed 49 transactions. And, with total deal value of $38 billion through the first half of 2019, this year already substantially outpaces 2018.

While many recent deals, such as the merger of BB&T and SunTrust and that of TCF and Chemical Financial, have focused on increasing geographic footprints and scale efficiencies, 1,2 fintech and capability-building deals are gaining traction. US banks averaged just three or four fintech deals per year through 2017, but deal volume exploded in 2018 with 16 transactions, and the first half of 2019 saw nine fintech deals (Exhibit 1). A good example of recent deals is Goldman Sachs’ acquisition of United Capital and its FinLife CX digital customer-service platform to add an advisor-led tech-enabled platform to the bank’s growing suite of digital offerings. 3

Tailwinds favor M&A growth

In 2019, market reaction to bank-to-bank and fintech mergers has generally been positive. On the day of deal announcement, the market rewarded both BB&T and SunTrust with share value increases of 4 percent and 10 percent, respectively. More fundamentally, we believe there are multiple reasons why M&A activity in US banking could continue to increase.

The profitability of US banks has improved substantially, thanks to significant productivity investments, higher interest rates, and lower taxes. The average ROE of US banks climbed from 8.6 percent in 2013 to 10.8 percent in 2018. Banks also enjoy a stronger capital position that puts them in a better position to execute M&A.

Regulatory reform is reducing requirements for banking combinations. The threshold triggering substantial additional process and capital measures has increased from $50 billion to $250 billion (Exhibit 5). This particularly benefits regional banks that need greater size and scale to strengthen their competitive position for deposits versus larger banks—where they have been challenged.

US regional banks face intense pressure to build new capabilities in robotics, machine learning/artificial intelligence, and advanced analytics (e.g., people and talent analytics) as banking increasingly digitizes. M&A is one of the best ways to acquire skills or generate cost efficiencies that can fund internal efforts. For example, when BB&T acquired SunTrust, it announced a cost-savings target of $1.6 billion and plans to invest a substantial portion into digital banking. 5 JPMorgan Chase earmarked $11.5 billion in 2019 alone for technology investments, with machine learning, artificial intelligence and blockchain identified as top priorities; a good example is the bank’s recent acquisition of InstaMed, to support its position in payments. CapitalOne purchased Wikibuy, an online website that allows shoppers to compare prices for items, to help customers “feel confident in their purchasing decisions.” 6

The US is home to a lot of banks. While consolidation has steadily reduced the number of US banks from roughly 15,000 in 1985 to about 5,000 today, many industry executives and experts expect the consolidation trend to continue. Our research shows that more than 60 US banks with assets of $10 billion to $25 billion might be attractive acquisition targets for well-positioned regional banks—for example, regional banks with a high cost-income ratio and a low loans-to-deposits ratio, among other factors.

Beyond these trends favoring M&A growth, we believe that M&A will prove critical to next-generation transformation in US banking. Leading digital European markets clearly demonstrate the power of digitized banking, as banks there are achieving cost-to-asset ratios as much as 60 to 80 percent lower than US banks. A smart, well-executed M&A strategy can equip US banks to make slow internal efforts history. Banks can dramatically improve their cost productivity, with machine learning and robotics, and their people development, with advanced people analytics that better match talent to value and develop future leaders.

Successful bank acquirers get nine things right

In our experience, successful bank acquirers of other banks and fintechs take a strategic, long-term approach to M&A. They invest time and resources to build an end-to-end M&A approach, including deep understanding of how M&A serves their overall strategy, optimal candidate development and cultivation approaches, the merger management expertise required to execute, and the long-term capability development that enables them to deliver consistently. In our work, we see the most effective acquirers apply nine principles to realize full value from their M&A strategy.

1. Make M&A a core plank of the overall strategy—don’t rely on opportunistic M&A.

Too many acquirers resort to M&A as a way to buy growth or acquire an asset opportunistically, reacting to available deal flow to drive activity, without thorough understanding of how the deal will create value.

The best acquirers embed M&A in their strategic planning process. They require businesses to identify where inorganic moves are necessary to advance the bank’s strategy and then translate these moves into actionable deal theses that guide candidate scanning, prioritization, and progress review. Only after pressure-testing and prioritizing these themes do leaders develop lists of M&A targets that fit the investment themes within the overall strategy.

For banks, this means making M&A an integral part of the capital-planning process, with the annual capital plan adjusted—materially—to support the highest-potential investment themes. Practically speaking, this effort requires getting very clear on the decision rights and governance model for M&A execution; for example, who leads pre-diligence exploration of companies on the M&A candidate lists, what role the CFO plays, and what triggers full diligence.

2. Continuously cultivate top-priority deal candidates with a programmatic approach, not one-off efforts.

The best bank acquirers source and develop potential M&A candidates continuously and develop them across all stages of the M&A process. These efforts extend from conducting rapid pre-diligence review of prioritized targets, including high-level valuation and assessment of synergy potential, to proactive outreach to targets, supported by talking points on the bank’s partnership vision.

3. Assess the full spectrum of opportunities, including partnerships, joint ventures, and alliances, to gain scale and capabilities.

Highly innovative industries like pharmaceuticals and high-tech have long relied on joint ventures and alliances to develop their businesses. As banking advances further into digitization and advanced analytics, JVs and alliances are becoming much more relevant, especially for regional banks that lack the digital and fintech M&A resources of the larger money center banks. In particular, to succeed in digitization, many regional banks will have to assess the full range of partnership opportunities, from full joint ventures (with or without equity) to strategic partnerships to contractual alliances.

4. Tap divestitures to strengthen value creation—don’t buy without understanding the potential for a simultaneous sale.

Our analysis of thousands of deals finds that companies active in divesting, not just acquiring, achieve TRS that is 1.5 to 4.7 percent higher than the TRS of companies focused on acquisitions alone.

Successful bank acquirers use forcing mechanisms like the budget process to review the landscape of potential assets to sell and proactively shape the assets for sale based on an understanding of their value to a more natural owner. These winners also pay special attention to managing the stranded costs that can represent huge value leaks for banks.

One leading money center bank makes divestiture review part of its annual strategic planning process, evaluating businesses throughout the year on their strategic importance, operational value, and amount of capital freed up, if sold. The bank has a “productivity czar” who reports to the CEO and uses an algorithm-supported approach to counter the tendency of division leaders to protect assets in their portfolio by overstating their importance. The algorithm deepens insight into growth contribution (or lack of), required management resources, operational complexity, capital deployed, and ROE impact. This approach makes the bank much more nimble in divestitures and ready to use “acquisitions for growth” as catalysts for simultaneous value-adding divestitures.

5. Establish a value-added integration management office (IMO) led by an “integration CEO”—don’t make integration a checklist exercise.

We often hear financial industry executives say that they have a merger playbook and know how to execute. But the TRS numbers show that banks have struggled to create value through M&A.

Beating the odds requires more than checklists used in past integrations or third-party process support. M&A winners establish an IMO and empower an integration CEO to tailor how they manage every integration effort to deal rationale and sources of value. For example, winners heavily discount cost synergies envisioned beyond 24 to 30 months because they know the importance of realizing the lion’s share of the synergies in year one. Winners also move purposefully to take control of the acquired bank, particularly its credit decisions, portfolio management, and back-office systems and costs. One leading bank mobilized a “SWAT” team to stabilize the target’s shaky balance sheet and free up substantial capital. Winners also implement cost-saving measures as soon as possible. Failure to do so poisoned the culture in one bank’s branch sales network through delaying inevitable branch headcount reductions until several months into the integration effort.

6. “Open the aperture” on capturing value—don’t rest with the due diligence numbers.

Failing to update synergy expectations during integration is one of the most common, but avoidable, pitfalls in any transaction. This is especially true in banking, where the industry structure invites treating M&A as a project. This project typically sets synergy targets during due diligence, builds the targets into department operating budgets, and creates a checklist-based PMO process to monitor progress against the targets.

M&A winners regularly exceed due diligence synergy estimates by 200 to 300 percent because they reassess synergy potential throughout the life cycle of the deal, especially pre-close, pushing hard to uncover upside and transformational synergies. In successful banking deals, this often means dividing synergy-capture efforts into two time-based categories ─ initiatives that move quickly to generate maximum bottom-line impact in the first year (and often capture 50 to 70 percent of the cost synergies) and larger, longer-term initiatives that are typically technology-dependent.

Protecting the base business is a critical component of value capture that often goes unappreciated in banking mergers. M&A leaders make taking frequent temperature checks and attending to the health of the front-line business and customer satisfaction during integration a core responsibility of the integration CEO. For example, customer churn in corporate banking requires special attention early in the merger, since many customers do business with multiple banks. In a recent successful merger, this meant proactive outreach to corporate customers by pairs of acquirer/target relationship managers and careful manual migration of customers to the acquiring bank to avoid any errors or complaints.

Ensuring that the value capture team opens the aperture on synergies is particularly important given the recent tendency to announce a banking deal as a “merger of equals.” The intent is admirable but impractical to enact. Merger-of-equals positioning may benefit pricing, but it typically slows and softens decision-making, hamstrings implementation, and raises the risk of value leakages throughout the integration effort.

7. Build an independent technology roadmap—don’t let current business operators and maintenance dictate the approach to capturing value.

In our experience, IT enables about 70 percent of a bank’s cost synergies but, without careful planning, can easily take 50 percent longer than expected to capture the value and can add incremental costs of 50 to 100 percent to what the bank already spends on IT. Making tough choices on IT integration is especially challenging for banks because they rely heavily on third parties to maintain their many custom-built legacy platforms. Banks can’t always count on those providers to provide objective advice on the right technology roadmap to follow.

Successful bank acquirers make IT integration a strategic priority, rather than a PMO-managed integration project. They develop an overall technology blueprint aligned with their strategy, sources of deal value, and customer-service requirements before launching costly IT integration initiatives and project management. One M&A leader looks to independent, internal subject-matter experts to build the “no case” for proposed technology roadmaps, tasking them with pressure-testing the logic and forcing discussion of other options.

This approach is particularly salient in fintech deals, since, along with talent, the technology platform is often the raison d’être of the deal, but in some cases that platform may meaningfully exceed the experience and expertise of the bank’s IT team. The bank must determine as early as possible what capabilities of the target the deal should preserve and what target-specific attributes (people, processes, and platforms) make those capabilities work so the integration effort can protect and nurture those attributes to scale.

One M&A leader has repeatedly chosen its future platform within the first months after deal announcement, using workarounds after close to maintain an adequate customer experience until the optimal systems integration roadmap is ready. This bank often migrates first and transforms later because it knows that advancing on both fronts at once is too complex. In a recent successful bank-fintech merger, customer migration proceeded in two waves—manual migration of corporate customers, followed by automated migration of retail customers. Goldman Sachs’ acquisition of Final is a good example of a deal that augments strategy, in particular Goldman Sachs’ publicly stated objective to invest in its consumer-centric business. Final impacts Goldman Sachs’ partnership with Apple Card by adding digital features for fraud and theft protection, including those which allow consumers to monitor their spending in real time.

8. Take a scientific approach to identifying cultural issues and change management—don’t pay lip service to cultural integration.

Mission, vision, and values can look very similar across banks. Executives often return from pre-deal announcements convinced that the cultures of the companies involved are very similar and that smooth organizational integration will be a snap. This is a major source of deal failure. M&A leaders don’t underestimate the importance of proactively tackling the challenges involved in integrating cultures. They understand that culture goes beyond values and comes alive in a company’s management practices—the way that work gets done, such as whether decisions are made by consensus or by the most senior accountable executive.

If not addressed properly, cultural integration challenges inevitably lead to friction among leaders, decreased productivity, increased talent attrition, and lost value. M&A leaders rigorously assess top management practices and working norms early and design the overall program to align practices and mitigate risks early and often. Alphabet, for example, is well-known for a programmatic approach to M&A and integration of fintech acquisitions that proceeds in phases linked to talent and sources of deal value.

Successful cultural integration often lends itself to an added area of opportunity in scale mergers. In these cases, the merger itself can be leveraged to reinforce critical behaviors that may be lacking in the acquiring organization, thereby creating not just an integrated culture but putting a stop to bad behaviors that might have existed pre-integration. In these situations, leading organizations choose to evaluate culture, and more broadly talent management and experience, holistically across both organizations and set a clear aspiration for a merged culture that will best enable the new organization’s strategic goals. This is particularly important when the acquisition brings in fundamentally new talent pools that may have different definitions of success, progression, and experience, as in the acquisition of a fintech into a large traditional bank.

M&A leaders also don’t skimp on formal change management planning. They take a rigorous and regimented approach to each phase of the integration, engaging stakeholders through the process and ensuring a dedicated handoff period for the transition to steady state.

9. Build capabilities for future deals—take full advantage of every opportunity to deepen the bench.

M&A leaders treat each deal as an opportunity to upgrade their M&A team’s skills and expertise. In banking M&A, talent is increasingly emerging as one of the primary sources of competitive advantage. Banks that allocate human capital, as well as financial resources, strategically and dynamically stand to generate significant economic return. This makes leadership and talent development the “next big thing” for unlocking value in banking M&A, with direct impact on the bottom line. After doing a deal, M&A leaders are just as rigorous in measuring success. They carefully track deal impact across critical KPIs, such as lower cost-income ratios, increased revenue growth above base trajectory, and more efficient use of capital.

Many CEOs and top teams in US banking and fintech see increasing their existing talent bench as critical for success, as has been raised with McKinsey in multiple CEO discussions and recent banking executive roundtables. Most need to make building M&A and integration skills a top priority. This calls for defining their talent development needs comprehensively and responding appropriately—for example, with executive training programs, leadership development, functional capability-building, coaching, and proprietary diagnostics for the talent development “playbook.”

One winning financial industry acquirer regularly devotes a full day, usually a weekend, to reviewing the profiles needed for the integration of a specific deal. This M&A leader spends substantial time identifying the right talent for each role and making sure that the hand-picked leaders get the right training to succeed in the context of the given deal.

Deal-making by US banks spiked in 2018 and shows an upward trajectory for 2019. Many banks can capitalize on the opportunities, especially if they apply the principles of M&A strategy and integration that have served the few successful acquirers in the industry so well.

The authors would like to acknowledge the contributions of Alok Bothra, Alex Camp, Kameron Kordestani, Steve Miller, and Zoltan Pinter to this article.

1 “BB&T and SunTrust to Combine in Merger of Equals to Create the Premier Financial Institution,” SunTrust press release, February 7, 2019.

2 “Chemical Financial Corporation and TCF Financial Corporation Close Merger of Equals to Become the New TCF,” Business Wire, August 1, 2019.

3 “Why United Capital Chose Goldman, Not a PE Backer,” Barrons, May 16, 2019.

4 Based on comparison with an index of peers’ TRS during the two years following an acquisition.

5 “BB&T and SunTrust to Combine in Merger of Equals to Create the Premier Financial Institution,” SunTrust press release, February 7, 2019.

6 “Changing the Game: Saving Money Online Is Easy, Lightning Fast With Wikibuy from Capital One,” CapitalOne.com.

7 “U.S. Bank expands fintech partnerships to B2B space,” usbank.com, October 29, 2018.

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Fuelling the Future with Safe Hydrogen Transportation Through Natural Gas Pipelines: A Quantitative Risk Assessment Approach

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Published: 17 May 2024

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Mohamed Omar Amer 1 ,
Seyed Mojtaba Hoseyni 1 &
Joan Cordiner 1

The global transition to clean and sustainable energy sources has sparked interest in hydrogen as a potential solution to reduce greenhouse gas emissions. Efficient and safe transportation of hydrogen is crucial for its integration into the energy network. One approach is utilizing existing natural gas infrastructure, but it introduces unique challenges. Hydrogen has distinct characteristics that pose potential hazards, requiring careful consideration for safe transportation through natural gas pipelines. Moreover, the absence of field data on component failure rates adds to the existing uncertainty in Quantitative Risk Assessment (QRA) for hydrogen transportation. QRA plays a vital role in enabling the safe deployment of hydrogen transportation through existing pipelines and is increasingly integrated into the permitting process. The lack of data impedes the comprehensive understanding of risks associated with hydrogen transportation. This paper aims not only to analyse the effects of hydrogen blending ratios on gas dispersion, release rates, jet fires, and explosions in natural gas pipelines, but also highlight the disparities in leak frequencies currently used for hydrogen or blended hydrogen. A QRA for hydrogen blending in natural gas pipelines is novel and timely because the behaviour of hydrogen in natural gas pipelines, a novel process with potential hazards, is not fully understood. Conducting a thorough QRA on hydrogen blending in gas pipelines, our study reveals innovative insights: higher blending ratios reduce release rates, impact safe distances, and maintain stable flame lengths. Despite an elevated explosion risk, scenarios remained below lethal overpressure values. This paper offers unique contributions to safety considerations in hydrogen transportation, guiding stakeholders toward informed decisions for a secure and sustainable energy future.

Avoid common mistakes on your manuscript.

Introduction

The current global shift towards sustainable and eco-friendly energy sources has ignited a burgeoning fascination with H 2 as a viable remedy for mitigating carbon dioxide emissions up to 20% by 2050 and tackling the issue of climate change [ 1 ]. Hydrogen’s potential lies in its capacity to generate energy without any carbon emissions through fuel cells or combustion procedures. Yet, the safe and effective transportation of hydrogen remains a vital determinant in unlocking its full potential within the energy grid [ 2 ].

One viable approach to hydrogen transportation is utilizing existing natural gas infrastructure, which offers the advantage of cost savings and minimizes the need for extensive new infrastructure [ 3 ].

Transporting hydrogen presents several challenges, including the need to modify existing infrastructure, guarantee safety, avoid embrittlement, handle fatigue, and effectively detect leaks, especially since hydrogen lacks distinct odorants. Additionally, adapting current infrastructure for hydrogen use introduces added complexity and expenses as hydrogen’s lower energy density compared to other fuels necessitates more stringent compression requirements [ 4 ]. Moreover, Hydrogen possesses distinct characteristics, including a low boiling point and density, low ignition energy, wide flammability range, and high burning velocity compared to conventional fuels [ 5 ]. These characteristics give rise to potential hazards that must be carefully addressed to ensure the safe transportation of hydrogen through natural gas pipelines. Adding to that, the lack of system data for hydrogen transportation in transmission pipelines, which is essential for developing valid component reliability data. The absence of field data on component failure rates contributes to the uncertainty surrounding hydrogen risk assessment. Addressing these challenges is pivotal for unlocking hydrogen’s potential as a clean energy solution in our transition to a low-carbon future. Wu et al. examine high-strength steel failure from hydrogen, stressing the need for more research on embrittlement mechanisms, demanding extensive experimental and simulation support [ 6 ]. Pluvinage, Capelle, and Meliani propose adjustments for steel pipes in hydrogen transport, advocating for altering design factors and using specialized tools for defect evaluation, while also exploring hydrogen embrittlement’s effects on fatigue endurance [ 7 ]. Regarding ignition probabilities, Astbury et al. thoroughly analysed potential ignition mechanisms for hydrogen safety [ 8 ]. Dagdougui et al. assessed thermal hazards from pipeline releases [ 9 ], while Viana et al. proposed risk mitigation for pipelines [ 10 ]. Similarly, studies by Jo and Ahn [ 11 ], Russo, de Marco, and Parisi [ 12 ], Li et al. [ 13 ], and Jeong, Jang, and Lee cover various aspects of hydrogen transportation and risk assessment [ 14 ], yet none specifically tackle the frequency of hydrogen releases during dispensing operations. This gap underscores the need for further research in this critical area to ensure comprehensive safety measures in hydrogen transportation systems. This paper fills this gap by introducing a novel Quantitative Risk Assessment (QRA) for hydrogen blending in natural gas pipelines, a novel process with limited operating knowledge and substantial potential hazards. It addresses the lack of understanding regarding hydrogen behaviour in these pipelines and the frequency of hydrogen releases during dispensing operations. By analysing blending ratios and safety parameters, it offers insights into hydrogen transportation risks and emphasizes the need for refined risk assessment methods.

To facilitate broader adoption of hydrogen across various sectors, thorough investigations into safety and risk factors are crucial. Quantitative risk assessment (QRA) plays a key role in enabling the safe implementation of hydrogen transportation in transmission pipeline and is increasingly integrated into the permitting process. In addition to the challenges outlined, QRA serves as a paramount tool for systematically evaluating and quantifying potential risks associated with the transportation of hydrogen. This analytical approach is essential for identifying vulnerabilities, predicting worst-case scenarios, and implementing targeted safety measures to mitigate risks effectively [ 15 , 16 ].

The purpose of this paper is to analyse and compare the changes in dispersion behaviours and risks associated with transporting blended and pure hydrogen in existing natural gas (NG) pipelines. The research gap in this context is the lack of understanding and reliable data regarding the accuracy and reliability of risk assessments for hydrogen transportation. There is a need for further research and data collection to improve the reliability of quantitative risk assessments. Moreover, the research also aims to address the lack of understanding on how leak frequencies can affect risk values and subsequently impact decision-making in hydrogen transportation pipeline systems. By employing a Quantitative Risk Assessment (QRA) methodology, the paper aims to shed light on the relationship between leak frequencies and overall risk levels. The study includes a case study on a specific 32” onshore natural gas pipeline in Egypt to provide insights into safety considerations crucial for the successful integration of hydrogen transportation using existing natural gas infrastructure. Through this research, the paper seeks to contribute to the development of comprehensive safety mechanisms, including risk assessment, hazard analysis, and safety indices specifically tailored for hydrogen transportation, while addressing the lack of guidance on establishing input data for safety and reliability engineering analyses in situations where little or no field data exists.

Methodology

Methodology introduction.

The in-depth analysis methodology employed in this study utilized the classical Quantitative Risk Analysis (QRA) procedure. QRA is a valuable tool for assessing risk and aiding decision-making processes. The guidelines for conducting QRA were established by the Centre for Chemical Process Safety and are documented in their publication titled “Guidelines for Chemical Process Quantitative Risk Analysis” [ 17 ]. The process is shown in Fig. 1 .

QRA methodology flow chart

QRA begins by defining the system and using qualitative techniques to identify hazards and select scenarios for modelling. Accidents and impacts are estimated through frequency and consequence modelling to develop risk measures. Criteria for acceptable risk levels are introduced, and if risks are unacceptable, measures to reduce risk may be necessary and evaluated using a cost-benefit analysis [ 18 ]. The detailed description of the proposed steps of Fig. 1 is provided below:

Methodology Steps

Step 1 hazard identification/failure case selection.

Hazard identification is a crucial step in QRA for mitigating potential hazards [ 19 ]. Techniques like engineering codes, checklists, and hazard index methods are used for hazard assessment. Selecting failure cases involves listing all incidents without bias and identifying significant ones. For hydrogen leaks, investigating a limited range of hole sizes (e.g., 5 mm, 25 mm, 100 mm) and modeling up to 10 leak sizes is important. Hole size choice significantly impacts risk assessment results, as well as release rates when pressure fluctuations are accounted for. Failure cases are classified as small, medium, or large with rates of 1 kg/s, 10 kg/s, and 100 kg/s, respectively, although values can vary widely [ 18 ].

Step 2 Consequence Analysis

Consequence estimation is a technique to assess potential harm resulting from specific incidents, which may cause multiple outcomes [ 20 ]. Consequence analysis is crucial for evaluating the potential harm caused by incidents [ 21 ]. It involves using explosion and fire models, as well as source and dispersion models. Source models define the release scenario, while dispersion models convert the outputs into concentration fields [ 22 ].

Source models calculate the release rate based on factors like pressure, hole size, and phase. The rate determines the gas cloud size and resulting fire or smoke plume. Dispersion models consider momentum, wind, and ventilation to determine gas cloud spreading and ignition/fatality zones [ 23 ].

The impact of thermal radiation is mainly determined by the thermal radiation flux and the duration of exposure. However, other factors such as clothing type, availability of shelter, and individual characteristics can also affect the outcomes. The following information offers guidance on the expected lethality levels in typical situations, considering how these factors may influence the results. Table 1 presents a summary of thermal radiation exposure effects at various radiation flux levels, based on the guidelines provided by IOGP 434 − 14 Vulnerability of humans [ 24 ].

Explosions cause damage to structures and create projectiles like fragments and shattered glass. Overpressure effects on humans are categorized as direct, secondary, and tertiary injuries. Direct injuries result from the pressure change, secondary injuries from fragments or debris, and tertiary injuries from individuals colliding with objects or structures due to blast force. In QRA, lethality estimation considers the combined effects of these categories. Casualties requiring treatment usually occur when overpressures exceed 1 barg. However, secondary effects and thermal injuries often have a greater impact, making direct blast injuries a small portion of total casualties [ 24 ].

Step 3 Frequency Analysis

Frequency analysis estimates the likelihood of failure cases like pipe leaks identified during hazard identification. Approaches include historical accident data, Fault Tree Analysis (FTA), Event Tree Analysis (ETA), Event Sequence Diagrams (ESDs), etc… Strengths and weaknesses of each technique are outlined in guidelines for quantitative risk analysis [ 17 ].

Frequency analysis in this context primarily focuses on the occurrence of undesired hydrogen releases and the development of risk scenarios. It involves estimating leak frequencies from different components. SANDIA data includes state-transition probabilities for Event Sequence Diagrams (ESDs), such as immediate or delayed ignition probabilities (Table 2 ), based on estimated hydrogen release rates [ 25 ]. Table 2 lists the ignition probabilities of hydrogen, which were determined based on the rate at which hydrogen was released.

These ESDs are based on the existing ESDs for GH2 (gaseous hydrogen) releases found in the HyRAM software, as shown in Fig. 2 .

ESD for GH2 releases [ 25 ]

Step 4 Risk Estimation/Risk Assessment

Quantitative risk analysis generates numerical values that, on their own, may not hold significant meaning. It is during the assessment phase, where these numbers are carefully examined and interpreted, that meaningful conclusions and actionable recommendations can be derived. This phase is crucial as it allows for the extraction of valuable insights and practical outcomes from the risk analysis. The integrated QRA model combines consequences and frequencies to produce numerical risk values. The calculated risks are combined and presented in the appropriate format. Utilization of risk estimates involves using the results to make decisions, such as ranking risk reduction strategies or comparing to specific risk targets [ 26 ]. Risk analysis provides measurable insights into potential risks associated with a facility or activity. Acceptability of these risks is determined by experts’ judgment, comparing calculated risk values to predetermined criteria.

Risk evaluation for personnel, the public, on-site companies, and adjacent offices follows the Individual Risk Per Annum (IRPA) criteria based on HSE guidelines from Reducing risks, protecting people (R2P2). Risks exceeding 1.00E-3 per year for on-site individuals or 1.00E-4 per year for the public are considered intolerable. Risks below 1.00E-6 per year are generally deemed acceptable. Societal risk is assessed using an FN curve, projecting the R2P2 point based on UK HSE guidance. The curve in Fig. 3 examines the relationship between the number of fatalities (N) and cumulative frequency (F) [ 27 ].

IRPA represents the likelihood of an individual’s death from exposure to hazards or activities for one year as:

where the variable f represents the respective fractions of spent time spent by an individual on-site during a year. IRPA values are depicted through frequency contours that rely on manning distribution. While Location-Specific Individual Risk (LSIR) quantifies the likelihood of a hazardous event causing death to an unprotected individual in a specific location over a year, LSIR is the cumulative impact of toxic, thermal, and overpressure effects on individuals. It is assumed that the person is present 24/7, 365 days a year. LSIR is measured in year − 1 . Evaluation of LSIR using different notations is given by CCPS process safety calculations [ 26 ].

HSE intolerability criterion for societal risk [ 28 ]

Case Study Philosophy and Approach

The hazard assessment for hydrogen follows similar techniques as the chemical industry. sources of accident data that can be used during hazard reviews for Hydrogen are the HIAD database, the H 2 Incidents website, and technical references on the hydrogen compatibility of materials [ 29 ]. In this study, the planned use of HYRAM software had to be reconsidered due to its inability to analyse risks associated with hydrogen blends, despite being mentioned in their technical report [ 25 ]. As a result, PHAST 8.7 and SAFETI 8.7 software from DNV were employed to support the Quantitative Risk Analysis (QRA) process. Both have proven to be effective in assessing risks in petrochemical plants, chemical plants, and other similar facilities, including those related to hydrogen.

System Description

In this case study, a 32” onshore natural gas pipeline spanning 120 km in Egypt is designed to transport natural gas between two cities in Egypt. The pipeline route passes through or in close proximity to four residential populations, referred to as Population 1, Population 2, Population 3, and Population 4 within the case study. The total length of the pipeline is approximately 120 km, with a maximum capacity of around 388 million Standard Cubic Feet Per Day (MMSCD) of Natural gas (NG) and usually buried under 1 meter.

This case study utilizes the Design and Project documentation as its basis, and the subsequent Table 3 provide a summary of crucial operating conditions and pipeline data.

Key Assumptions

To use natural gas pipelines for hydrogen transportation, consistent heating values at delivery points must be ensured. This is because hydrogen requires approximately three times more volume compared to natural gas [ 29 ]. Understanding the conditions and challenges associated with hydrogen transportation is crucial to meet these requirements effectively. In this study, a simulation model is used to increase the volumetric flow rate of blended hydrogen (448.5 MMSCFD) and pure hydrogen (1234 MMSCFD) to maintain consistent heating value. The study also examines the resulting pressure drop in hydrogen and blended hydrogen.

Methodology Application

Hazard identification/failure case selection.

Risk in the context of pipeline failures is determined by the likelihood of failure and the resulting negative impact. It’s important to understand that not all failures have severe consequences, and there are two types: leaks and ruptures. In the case of natural gas and hydrogen transmission, leaks contribute minimally to the overall risk, while ruptures being the primary concern [ 18 ]. Both scenarios are estimated and considered relevant. To analyse accident scenarios and assess risks, it is necessary to estimate the number of components and pipe lengths by examining the PFD. The representative release scenario considered for each segment of the pipeline is the same. Population 4 has the largest surface area and highest population, making it a representative for evaluating individual and societal risk. Risk calculations will focus on different pipeline failures near Population 4, considering various leak sizes. Pipeline Line Segment length considered is 1 Km.

The gas pipeline operates at a pressure of 70 bars; however, risk evaluation will be based on the design pressure of 77 bars and a temperature of 25 °C. The gas composition consists of 97% methane (by mole) and 5% heavier hydrocarbon components. As mentioned earlier, the selected segment is representative of the typical population densities along the entire length of the gas pipeline, taking into account the presence of ignition sources. It is considered that any other segment along the pipeline route can be adequately represented by the proposed segment.

Consequence Analysis

When assessing the risk of an accidental pipeline release or rupture, it’s essential to differentiate between two types of effects: overpressure from a physical explosion and thermal radiation emitted by a jet fire. Generally, the overpressure effects have a relatively small impact on the overall risk, while thermal radiation dominates [ 30 ]. However, for this study, the consequence scenario considered is gas dispersion, thermal radiation and overpressure.

In Consequence Modelling, a sensitivity analysis was carried out that involved examining 15 cases, considering various release sizes and hydrogen blending ratios. The chosen release sizes of 1 inch, 6 inches, and full rupture (31 inches) represent a range of potential release sizes. This allows us to explore the consequences of both smaller and larger releases, including the worst-case scenario of a full rupture. Additionally, the hydrogen blending ratios of 0%, 20%, 50%, 80%, and 100% represent different levels of hydrogen concentration in the release. These ratios enable us to understand the impact of various hydrogen mixtures on the model’s outcomes.

By conducting this sensitivity analysis across the 15 cases, we can better understand the sensitivity of the consequence model to changes in release diameter and hydrogen blending ratio. This information will be valuable for evaluating the potential risks associated with different operating conditions and aid in making informed decisions for safe distance or land use planning. For each designated release event, an extensive analysis involving dispersion modelling flash fire and explosion assessments, as well as fire size calculations relating to jet fires, are methodically executed with Det Norske Veritas (DNV) advanced consequence and risk modelling software tool, SAFETI (Version 8.7) [ 31 ].

Frequency Analysis

To quantify the overall risk associated with a hydrogen pipeline, it is important to identify the potential types of accidents that can occur. Leakage of hydrogen from pipelines can lead to jet fires, flash fires, or explosions depending on the ignition source. The frequency and consequences of these accidents depend on the size of the leak and the system pressure. To model these accidents in a Quantitative Risk Assessment, it is desirable to establish component leak frequencies based on leak size and system pressure [ 32 ].

However, there is a lack of available data specifically focused on hydrogen component leakage events for QRA purposes. Existing databases, such as the DOE Hydrogen Incident Reporting database, provide valuable insights from major events but often lack comprehensive data on smaller leakage events and operating hours. As a result, most QRAs for hydrogen facilities have relied on published values from non-hydrogen sources. For example, the EIGA recommends leak rates for various components based on a review of leak frequencies from different sources.

Sandia National Laboratories (SANDIA) utilized a statistical analysis method to combine various data sources. It combines data from various sources using traditional and Bayesian statistics. This statistical approach offers several advantages over traditional methods. Firstly, it enables the generation of leakage rates for different leak sizes. Secondly, the Bayesian approach provides uncertainty distributions for the leakage rates, allowing for the propagation of uncertainty in the risk assessment. Lastly, the Bayesian approach allows for the incorporation of limited hydrogen-specific leakage data, thus providing estimates for leakage rates specific to hydrogen components [ 33 ]. There exist two methods of data analysis: traditional statistical techniques and Bayesian statistics. Bayesian techniques prove to be better in some cases. However, when there is an abundance of data, the advantages of Bayesian techniques are limited.

According to SANDIA report, Bayesian analyses have two main drawbacks: subjectivity due to the use of subjective prior distributions and higher computational power compared to traditional analyses. However, sensitivity studies with different prior distributions can address the subjectivity issue. Bayesian techniques should be used in the Quantitative Risk Assessments of the hydrogen based on currently available data. Bayesian analysis enables greater consideration of relevant and specific data sets, generating uncertainty distributions, and allowing for more flexibility when new data is introduced [ 33 ]. In this study, data from different sources were utilized to assess the risk associated with hydrogen transportation. A sensitivity analysis was conducted to examine the impact of using various sources of leak frequencies currently available for hydrogen, including the European Gas Pipeline Incident Data Group (EGIG) pipelines database and the SANDIA report on hydrogen [ 33 ].

In this study, the IRPA values and FN Curves for individuals residing near the pipeline in Population 4 will be determined by considering factors such as occupancy and the time spent by individuals indoors and outdoors. Four distinct cases were examined to assess the variations in the risk associated with the transportation of natural gas, blended hydrogen, and pure hydrogen. The assumptions for each case are summarized in Table 5 .

involves natural gas with leak frequencies from SANDIA database and ignition probabilities of 0.2 and 0.1. Case 2 is a blend of 20% hydrogen and 80% natural gas with leak frequencies still sourced from SANDIA database and ignition probabilities of 0.23 and 0.12. Case 3 is pure hydrogen with specific leak frequencies from SANDIA database and same ignition probabilities as Case 2. Case 4 is pure hydrogen with leak frequencies from natural gas data and same ignition probabilities as Case 2.

Ignition Probability

Tchouvelev et al. established the ignition probabilities for hydrogen and natural gas, which can be found in Table 2 . These probabilities are based on the release rate of hydrogen or natural gas and provide immediate and delayed ignition probabilities depending on the rate of release. The release of hydrogen into the atmosphere carries a higher likelihood of ignition compared to other fuels, primarily due to its lower minimum ignition energy (MIE) and wider flammability range [ 34 ]. Consequently, the ignition probabilities for hydrogen, both for delayed and immediate ignition, surpass those of natural gas. When dealing with blended hydrogen, the ignition probabilities specifically for hydrogen are taken into account, as the ignition behaviours for blend have been found to be near that of pure hydrogen.

Population Data

Understanding population distribution is important for estimating risk, even if complete data on the entire population is not always available. Population density, which measures population distribution, is typically obtained from sources like census reports, maps, and site inspections. In cases where specific population data is lacking, guidelines for quantitative risk analysis suggest using occupancy categories as a substitute. Assuming a suburban town setting with a population density ranging from 5,000 to 19,000 people per square mile, an average value of 14,500 people per square mile was used. Additionally, 90% of the population was estimated to be indoors during the risk assessment period, with occupancy of 24/7, 365 days a year. Estimated population densities are shown in Table 6 .

Meteorological Data

In the analysis of releases, weather conditions play a significant role in determining the spread of the released material. Meteorological data, such as wind directions, wind speeds, and atmospheric stability categories, can be obtained from sources like the National Oceanic and Atmospheric Administration (NOAA) and nearby airports. These data provide valuable information on the frequency and characteristics of wind patterns [ 35 ]. For this study, weather data was obtained from the Egyptian Meteorological Authority to ensure adherence to best practices in Quantitative Risk Assessment weather data. A representative weather condition, known as D5, was chosen to model the dispersion of each release scenario. D5 represents neutral stability and a wind speed of 5 m/s, which is widely considered as the most probable inland condition, occurring in up to 80% of cases. A uniform wind rose was assumed to represent the worst-case scenario.

Results & Discussion

Heating value.

The findings indicate a pressure drop in both hydrogen and blended hydrogen, but the impact is not significant. Figure 4 illustrates the results of the three simulation cases: natural gas, pure hydrogen, and blended hydrogen, highlighting the observed pressure drop in each case. It’s important to note that despite increasing the molar flow rate to maintain the same heating value, the mass flow rate decreases in blended and pure hydrogen compared to natural gas. This decrease is due to hydrogen’s lower density compared to natural gas, resulting in a reduced mass flow rate even with a constant pipeline volume.

Aspen HYSYS sheet that shows pressure drop in the pipeline in three different simulation conditions for natural gas, pure hydrogen and blended hydrogen

Only three operating conditions were considered in the risk quantification, Pure hydrogen, natural gas and blend with 20% of hydrogen, as a study was conducted on gas networks at a university concluded that a blending ratio of 20% is considered safe and demonstrated the successful transportation of blended hydrogen through natural gas networks [ 2 ].

Consequence Modelling Results

A total of 15 cases were investigated, considering different release sizes (1 in, 6 in, and full rupture) and hydrogen blending ratios (0%, 20%, 50%, 80%, and 100%). Other parameters were set as follows: internal pressure of 77 bar, which represents the maximum allowable working pressure for the pipeline; wind speed of 5 m/s; vertical upward leakage direction; and ambient temperature of 25 °C. Explosions and jet fires are the primary consequences of transmission pipeline leaks, mainly due to the physical and chemical properties of hydrogen and natural gas. Therefore, the consequences of explosions and jet fires were modelled for different scenarios [ 36 ].

Below results were extracted from the PHAST consequence summary report for the case study, NG. The report includes analyses on gas dispersion and release rates, jet fire characteristics, and explosion characteristics, examining the effects of varying hydrogen blending ratios. These results offer valuable insights into the influence of hydrogen blending on different aspects of the study.

Effects of Varying Hydrogen Blending Ratios on Gas Dispersion and Release Rates

Flammable gas cloud concentrations for a full rupture have been extracted from PHAST and analysed, where Fig. 5 shows the influence of different hydrogen blending ratios on the safe separation distance of flammable concentrations and the change in distance to the lower flammable limit (LFL) was analysed. The results showed that there was no significant difference in the distance to LFL between hydrogen-blended gas and natural gas downwind distance on the ground, as it ranged from 5.4 m for hydrogen to 6.4 m for natural gas.

Flammable gas clouds under different gas blending ratios

Release Rates

The release rates of natural gas, blended hydrogen, and pure hydrogen were compared for different leak scenarios. Although the pressure upstream of the leak is constant for all cases at 77 bar, the hydrogen blending ratios had an impact on the release rates for all release sizes (1-inch, 6-inch, and full-bore ruptures). The full rupture scenario resulted in the highest release rates, with hydrogen having a release rate of 3272 kg/s, natural gas 8556 kg/s, and the 20% hydrogen blend 6850 kg/s. Figure 6 shows peak flow rate values at different release sizes (1”, 6” & full rupture (31”)).

Peak flow rates at different release scenarios

Release Rates and Dispersion Behaviours of Natural Gas, Pure Hydrogen, and Hydrogen Blends Discussion

Hydrogen and natural gas possess distinct physical properties. The composition of natural gas primarily consists of methane along with smaller quantities of ethane, propane, butane, and other higher-order hydrocarbons and gases [ 29 ]. These hydrocarbons exhibit significantly higher molecular mass and volumetric heating value compared to hydrogen.

The introduction of hydrogen into methane has significant impacts on its physical and chemical properties, which can have implications for consequence analysis. The addition of hydrogen to methane leads to a decrease in gaseous density, which affects dispersion in downwind direction, particularly in the absence of ignition. Consequently, due to these and other factors, the behaviour of a blended gas following a pipeline leak will vary based on the blend ratio.

Hydrogen demonstrates a buoyancy that exceeds air by a factor of 14.5, whereas methane is only 4 times more buoyant. To determine the releasing flowrate (ṁ) and assess the fluid dynamic data at the outlet section, the following equation is employed [ 37 ].

In this equation, 𝜌𝑒, 𝛾, R, and T 0 represent the gaseous density, specific heat ratio, ideal gas constant, and initial temperature, respectively.

As a result, both the internal pressure and density have an impact on the release mass flow rate. Since the internal pressure remains constant in this study (77 Bar), an increase in fluid density causes a proportional increase in the release flow rate. Due to hydrogen having a lower density than methane, an increase in the hydrogen blending ratio leads to a decrease in density and, consequently, the mass flow rates released and dispersion.

Effects of Varying Hydrogen Blending Ratios on Jet Fire Characteristics

The calculation of the results in this study involves assessing the potential risks associated with fire in the surrounding areas. These risks include temperature damage, smoke inhalation, and thermal radiation. Among these risks, the damage caused by pipe jet fires primarily arises from the thermal radiation, which can result in burns and fatalities. In this study, the focus was on analyzing the safe distance required to mitigate the intensity of thermal radiation in the event of a full pipe rupture, taking into account the hydrogen blending ratio. To determine the hazard zone of the jet fire, specific heat flux levels were used as reference values. For example, heat flux levels of 4 KW/m2 were considered to correspond to radiation values that can cause first-degree burns. Heat flux levels of 12.5 KW/m2 were associated with human fatalities in close proximity to the pipeline, while radiation values of 37.5 KW/m2 were observed to cause structural collapses.

By considering these heat flux levels and their associated radiation values, the study aimed to assess and quantify the potential risks and hazards posed by jet fires in different scenarios, particularly in relation to the hydrogen blending ratio.

Figure 7 presents the variations in the required safe distance to mitigate thermal radiation intensity, taking into account the hydrogen blending ratio in the event of a full rupture. It demonstrates the impact of the hydrogen blending ratio on the safe separation distance. As the hydrogen blending ratio increased from 0 to 20%, the decrease in flame length and distance downwind for a thermal radiation intensity of 4 kW/m2 was less than 5%. However, with further increases in the hydrogen concentration to 50%, 80%, and 100%, the distance downwind decreased by approximately 12% and 17%, while it increased by 5% for pure hydrogen compared to Blend 80/20 at an intensity level of 37.5 kW/m2 (See Fig. 8 ).

Distance downwind to intensity levels of 4, 12.5 And 37.5 KW/M2

Flame length Vs leak scenarios and blending ratios

Figure 9 illustrates the variations in flame length for flammable gas clouds at different blending ratios and release rates. It is evident that for small release sizes of 1 and 6 inches, there was no significant change in jet flame length across different blending ratios (0%, 20%, 50%, 80%, and 100%). However, in the case of a full rupture release, natural gas resulted in the longest jet flame length.

The results of the study indicate that natural gas jet fires tend to have a higher overall heat flux compared to hydrogen jet fires. This finding suggests that natural gas poses a greater jet fire hazard than hydrogen in terms of thermal radiation. The study examined the changes in hazard zones and lethality percentages for different blending ratios of hydrogen and natural gas in the event of a full rupture scenario, which can be found in below figures. The analysis revealed that when the hydrogen blending ratio was below 20%, the impact on the safe separation distance was minimal. In other words, the addition of hydrogen in low blending ratios did not significantly affect the distance required to mitigate the intensity of thermal radiation.

However, it was observed that pipelines blending hydrogen with natural gas had shorter separation distances compared to pipelines transporting natural gas alone under similar working conditions. This implies that the presence of hydrogen in the gas mixture can lead to a reduction in the safe separation distance required to mitigate thermal radiation hazards. These findings highlight the importance of considering the blending ratio of hydrogen in natural gas pipelines when assessing the jet fire hazard. The results suggest that higher blending ratios of hydrogen may contribute to shorter safe separation distances, potentially impacting the overall safety and risk management strategies for such pipelines.

Jet Fire Behaviours of Natural Gas, Pure Hydrogen, and Hydrogen Blends

Regarding the length of the flame, in all cases, an increase in release rate results in a longer cloud, and hydrogen has a lower release rate compared to methane and blended hydrogen. Moreover, the combustion of hydrogen is known to generate a lower level of radiant heat compared to hydrocarbons that are comparable, thereby reducing the possibility of igniting adjacent materials.

The addition of hydrogen can affect gaseous density in two ways. It can lead to dispersion either in a downwind or horizontal direction, which can have a significant impact on the area involved, especially if there is no ignition. Additionally, the speed of sound in hydrogen is 2.7 times that of methane, which affects the volumetric flow rate. Furthermore, the difference in density affects the specific energy content of the flammable mixture, as evidenced by the lower heat of combustion per unit of volume [ 37 ].

Jet firs hazard and lethality zones

Effects of Varying Hydrogen Blending Ratios on Explosion Characteristics

When a hydrogen pipeline damage, the released hydrogen gas disperses and remains within its explosive concentration range. In the absence of an immediate ignition source, the accumulated vapour cloud has the potential to disperse and ignite later, resulting in a vapour cloud explosion. Such an explosion can cause various damaging effects, including shock waves and thermal radiation, which can have a significant impact over a considerable area.

Both hydrogen and methane possess the ability to undergo detonation under specific conditions involving fuel/air mixture, confinement, and ignition source strength. However, hydrogen has a lower explosive limit (LEL) and a broader range of explosiveness compared to natural gas. As a result, hydrogen is more prone to explosion hazards than natural gas in general, making it an important consideration for safety measures. Considering the heightened explosion hazards associated with hydrogen, safety measures become crucial in mitigating risks. These measures may include strict adherence to rigorous inspection and maintenance protocols for hydrogen pipelines, implementation of robust leak detection systems, appropriate ventilation and containment strategies, and ensuring proper grounding and electrical safety measures to prevent ignition sources. Additionally, emergency response plans should be in place to address any potential vapor cloud explosions promptly.

Figure 10 provides a compelling visual comparison of the maximum explosion distances at a 0.2-bar overpressure for different blending ratios. Notably, the blending ratio of 20% hydrogen exhibits the highest explosion distance at 0.2 bar among the blends, reaching an impressive distance of about 85 m. Additionally, hydrogen itself demonstrates the highest explosion distance of approximately 95 m. This finding underscores the profound impact of hydrogen due to its stronger explosion characteristics when compared to natural gas.

Explosion scenario for worst-case maximum downwind distance to 0.2 bar overpressure level

Furthermore, below figures depict maximum overpressure hazard zones related to explosion due after a full rupture scenario. These figures reveal an intriguing observation: as the methane content increases, the overall range of overpressure decreases. This phenomenon can be attributed to the superior explosion characteristics of hydrogen compared to natural gas, further highlighting the potential hazards associated with hydrogen (See Fig. 11 .

Hazard zones for explosion

Explosivity Hazards of Natural Gas, Pure Hydrogen, and Hydrogen Blends Discussion

The overpressures produced by methane/hydrogen mixtures containing 20% by volume are considerably higher than those generated by natural gas alone. Therefore, incorporating less than 20% by volume of hydrogen in pipeline networks would not significantly increase the likelihood of explosion. However, mixtures containing 50% or more hydrogen pose a noteworthy risk of generating detrimental overpressures and the possibility of deflagration to detonation transition (DDT) [ 38 ].

The properties and behaviour of hydrogen and natural gas have significant implications for their explosion risks. While pure and blended hydrogen may have a lower release flow rate compared to natural gas, its higher speed of sound results in a higher volumetric flow rate in the choked regime for hydrogen-containing mixtures. The presence of hydrogen increases reactivity and lowers ignition conditions, suggesting that hydrogen-enriched methane could lead to more severe consequences in the event of delayed ignition compared to natural gas [ 39 ].

The physical properties of hydrogen, such as its large deflagration index, contribute to its increased consequences in the event of an incident. On the other hand, natural gas (methane) has a higher heat of combustion. Considering these properties alone, hydrogen presents a higher risk primarily due to its greater probability of ignition. However, it is important to note that in all scenarios analysed, the overpressure values never exceed 0.2 bar. Even in open or confined areas with congestion, this level of overpressure does not result in any lethality, making it an insignificant scenario.

Risk Quantification Results

Risk on population.

Individual Risk

The criterion of IRPA (Individual Risk of Fatality per Annum) is a widely employed measure for assessing spatial risks related to pipeline transport. It quantifies the probability of an individual’s death resulting from pipeline operations. The analysis of IRPA involves evaluating and quantifying the risks along the pipeline. The calculation of IRPA is typically multiplying the LSIR * fractions of spent time spent by an individual during a year.

Figure 12 showcases an ALARP (As Low as Reasonably Practicable) chart that displays the values of IRPA (Individual Risk of Fatality per Annum) for outdoor personal which were observed higher values. The corresponding results are summarized in Table 7 .

IRPA outdoor values on ALARP chart

The results indicate that in Case 3, where pure hydrogen leak frequencies and ignition probabilities from SANDIA were utilized, the maximum IRPA (Individual Risk of Fatality per Annum) for the indoor population was found to be 4.89E-07 per year, while for the outdoor population, it was 8.31E-07 per year. These findings demonstrate a significant reduction in risk values compared to the natural gas scenario. In the natural gas case, the maximum IRPA for outdoor populations was 2.4E-05 per year.

In Case 4, a distinct approach was taken by applying natural gas components leak frequencies to hydrogen transportation. This assumption presumed that the leak frequencies for H2 and natural gas components were equivalent.

According to the data in Table 7 , it can be observed that when the blending ratio was 20/80, the maximum IRPA rose to 3.84E-05 per year for the indoor population and 5.67E-05 per year for the outdoor population, which are higher in comparison to Case 1 (which involved only natural gas) with the same components leak frequency but higher ignition probabilities.

Societal Risk

Group/societal risk refers to the risk faced by a collective of individuals. It is a combination of the individual risk levels and the population exposed. The use of FN curves illustrates the group risk in this study. These curves depict the frequency of different consequences and are often plotted with cumulative frequencies and logarithmic scales [ 40 ].

The construction of the FN curves inherently impacts the assessment of group risk. Instead of manipulating probabilities within the model, the measure is evaluated by altering the number of individuals exposed to the risk of grounding. This modification directly influences the resulting FN curves, which depict the relationship between the frequency of events (F) and the number of people affected (N). Decreasing the number of individuals shifts the curves to the left while increasing the number of individuals shifts the curves to the right.

Below figures, present the FN curves, which serve to demonstrate the group risk as determined by the model. These curves specifically pertain to Population 4, which consists of approximately 150,000 individuals, roughly equivalent to the population of this town. On the curve, the leftmost point, located beyond the minimum criterion line, corresponds to a single fatality, and represents the range of 0–24% fatalities.

Upon reviewing below figures, it becomes apparent that the majority of the FN curve falls within the ALARP (As Low as Reasonably Practicable) region for cases 1 , 3, and 4. However, in the case 2, the curve falls in the broadly acceptable region below the minimum criterion line. It is important to note that the FN curves are influenced by the population size and various factors such as PLL (including leak frequencies, ignition probabilities, and material type).

Comparing FN cruces for Case 2 involving a blend with a 20/80 ratio and increased ignition probabilities, it is evident that the number of fatalities shows a minimal increase compared to Case 1 . In Case3, the modified leak frequencies proposed by SANDIA are utilized, resulting in lower leak frequencies compared to natural gas, along with a higher probability of ignition to account for the low ignition energy of hydrogen. The societal risk experiences a significant reduction, as indicated by the curve shifting into the acceptable region when compared to all other cases. Even in Case 4, where normal leak frequencies for natural gas are applied to hydrogen, it can be observed that at the same leak frequencies of 1 E-05, the number of fatalities in Case 4 is approximately 180, compared to nearly 220 in Case 1 (See Fig. 13 ).

FN curves for the four cases

IRPA Values and FN Curves for Natural Gas, Pure Hydrogen, and Hydrogen Blends Discussion

The assessment revealed a marginal increase in risk values and the FN curve for blended hydrogen (20/80) compared to the natural gas case. This can be attributed to the elevated ignition probability for blended hydrogen in comparison to natural gas. This suggests that the introduction of hydrogen into the blend poses some additional risk.

However, when considering the case of pure hydrogen (Case 3) using leak frequencies proposed by SANDIA, there was a substantial decrease in both individual and societal risk values. This decrease can be attributed to the reduced frequency of component leaks in the pure hydrogen scenario. In comparison to both Case 1 (natural gas) and Case 2 (blended hydrogen), the risk reduction achieved with pure hydrogen was significant.

It is important to note that all calculated risk levels in this analysis were found to be below the established intolerable risk criteria. This indicates that the risks associated with the studied scenarios fall within the As Low as Reasonably Practicable (ALARP) zones, which signifies an acceptable level of risk. However, it is crucial to emphasize that appropriate risk reduction measures should still be implemented, as long as they are deemed reasonably practicable. While the assessed risks are considered acceptable, it is important to continually assess and mitigate risks to ensure safety. Additionally, factors such as the blending ratio and the frequency of component leaks play critical roles in determining the level of risk and should be taken into account during risk assessment and management processes.

The paper investigates the safety implications of blending hydrogen with natural gas in pipelines through Quantitative Risk Assessment (QRA), focusing on factors like gas dispersion, release rates, fires, and explosions. It also examines variations in leak frequencies for hydrogen and its blends with natural gas. The findings unveiled significant disparities in the distance to the lower flammable limit (LFL) between hydrogen-blended gas and natural gas. Moreover, the release rates were influenced by the hydrogen blending ratios, indicating that higher blending ratios led to lower release rates in all leak scenarios. This phenomenon can be attributed to the lower density of hydrogen, resulting in reduced mass flow rates during a release. The study also examined the necessary safe distance to mitigate thermal radiation intensity, considering the hydrogen blending ratio. The results indicated that as the blending ratio increased, there was a slight decrease in the downwind distance required to reach specific heat intensity levels. However, this decrease became more pronounced at higher blending ratios.

In terms of flame length, no significant change was observed across different blending ratios for small release sizes. However, in the case of full rupture release, natural gas displayed the longest jet flame length. Additionally, the study observed that natural gas jet fires exhibited a higher overall heat flux compared to hydrogen, highlighting greater jet fire hazards associated with natural gas. When it comes to explosions, hydrogen presents an increased risk due to its stronger explosion characteristics and broader explosiveness range. Nevertheless, the scenarios analyzed in the study did not yield overpressure values exceeding 0.2 bar, which indicates zero lethality even in open, confined, or congested areas.

Furthermore, blending hydrogen with natural gas at an 80% hydrogen and 20% natural gas ratio results in behaviours similar to pure hydrogen in terms of release rate and jet flame length. However, the explosion distance is still higher for the blended gas compared to pure hydrogen, albeit lower than the pure hydrogen scenario. The physical properties of hydrogen and natural gas play a significant role in determining the risks associated with the blended gas, with hydrogen’s ignition probability being a primary factor.

In the context of this case study, the transportation of hydrogen through natural gas pipelines was determined to have no significant impact on safe distance requirements or land use planning. However, it is important to note that blends of hydrogen exceeding 20% can result in reduced thermal radiation distances compared to pure natural gas. Furthermore, a comparison between pure hydrogen and pure natural gas using the leak frequencies Bayesian approach proposed by SANDIA revealed lower individual and societal risk values associated with hydrogen. However, it is worth noting that when using the current leak frequencies for natural gas and applying them to the hydrogen case, there was a slight increase in risk values. This increase can be attributed to the higher ignition probability of hydrogen compared to natural gas.

These findings emphasize the critical importance of conducting comprehensive studies and developing realistic leak frequency data. By doing so, researchers and industry groups can obtain a more accurate assessment of the risks associated with hydrogen transportation. This, in turn, will facilitate the development of appropriate safety measures that effectively mitigate potential hazards. Moreover, collaboration between researchers, industry stakeholders, and regulatory bodies is vital for establishing standardized methodologies and guidelines for assessing hydrogen-related risks.

Abbreviations

Spent time by an individual during a year

Releasing Flowrate

Gaseous Density

Specific Heat Ratio

Ideal Gas Constant

Initial Temperature

Quantitative Risk Assessment

Health and Safety Executive

Hydrogen Incident and Accident Database

Centre for Chemical Process Safety

European Gas Pipeline Incident Data Group

As Low as Reasonably Practicable

Process Hazard Analysis Software Tool

International Oil and Gas Producers

Fault Tree Analysis

Event Tree Analysis

Event Sequence Diagrams

Minimum Ignition Energy

Individual Risk Per Annum

Reducing risks, protecting people

Location-Specific Individual Risk

Process Flow Diagram

Million Standard Cubic Feet Per Day

Natural Gas

Sandia National Laboratories

National Oceanic and Atmospheric Administration

Det Norske Veritas

Lower Flammable Limit

Deflagration to Detonation Transition

Frequency-Number of Fatalities

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Amer, M.O., Hoseyni, S.M. & Cordiner, J. Fuelling the Future with Safe Hydrogen Transportation Through Natural Gas Pipelines: A Quantitative Risk Assessment Approach. Trans Indian Natl. Acad. Eng. (2024). https://doi.org/10.1007/s41403-024-00482-7

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