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A series of M&A deals less risky than no M&A
McKinsey analysis released in January 2012 – Taking a longer-term look at M&A value creation – reveals that, in certain industry sectors and based on global averages, a growth strategy built around doing smaller M&A deals can actually be less risky than avoiding M&A altogether.
Industry structure, the matching of an asset to a well-articulated strategy, and the execution capabilities required to realise value were cited as the key factors that need to be considered when drawing a conclusion on a specific industry at a specific time.
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Other interesting points from the McKinsey research article include:
- Companies across a variety of industries do well using a programmatic approach to M&A
- The more deals a company did, the higher probability it would earn excess shareholder returns
- Evidence suggests executing a high-volume deal program requires certain corporate capabilities but not necessarily a specific industry structure
About the Author
Michael Cradock
Michael is a corporate finance advisor with a chartered accountant and management consulting background having worked for both KPMG and PricewaterhouseCoopers. Michael is an owner of Morgan Cradock and part-owner in two startup companies and one property fund.
Comparing the performance and valuation of acquisitive companies with a strategy-driven approach to non-acquisitive companies over the long term provides a more meaningful analysis to support the real strategic options facing business owners and Board of Directors. It seems the conclusion is that adopting a systematic approach to M&A, linked to a clear strategy delivers superior outcomes to non-acquisitive / organic growth. Its an important point well made.
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