Twenty years ago, large companies leaned into M&A when growing organically got difficult. But M&A was risky; ~70% of all mergers failed. Despite the risk, between 2000 and 2010, frequent acquirers (companies making one or more acquisitions/year) earned 57% higher shareholder returns than those who were inactive; by 2012-2022 that difference was ~130%. “[N]ow most great companies are the by-product of M&A and those that have mastered the art of frequently adding new businesses to their portfolio. . . . "Bain & Company looks at what the best acquirers learned over the past 20 years:
- Broaden M&A scope: In 2004, nearly all deals focused on building scale off a core business, though a few bought new capabilities and/or expanded their geographical footprint. M&A has “moved from cost and defense to growth and offense.”
- Better due diligence: The best acquirers become experts on the businesses they’re acquiring.
- Do more deals: The best predictor of a successful acquirer is experience. Frequent acquirers earn more than double the return of non-acquirers, and hyper-acquirers (do five or more deals/year) earn an additional 20%.
- Avoid big, one-off deals: Fewer/bigger “mergers that grabbed headlines . . . turned out to be utter failures.”
There have been ~660,000 deals worth a total of $56 trillion done over the past 20 years, with executives reporting that now nearly 70% of deals are successful. Some reasons why:
- Great M&A comes from great corporate strategy: With challenges (geopolitical, environmental, etc), come opportunities for new ventures, partnerships, and creative dealmaking.
- Dedicated team to manage the deal process end-to-end: “[T]he most successful organizations have full-time, dedicated . . . teams that are in perpetual motion to fill strategic gaps . . . through M&A and partnerships. And the leaders of these teams have a place at the senior leadership table.”
- Better diligence: Rather than just being financial modeling exercises, diligence includes talent/culture assessments, talking with customers, leveraging clean teams, pre-integration planning, etc., to identify synergies and ways to add value that help organizations better prepare for Day 1.
- Thoughtful integration: Allow the integration steering team to focus on the 20 critical decisions that will add value—e.g., how to best provide account coverage, which ERP platform will be the best for financial reporting and how to transition, etc. Other important decisions can be left to frontline managers.
- People/Culture: Companies need to communicate business aspiration and measure employee understanding and how they feel about the changes. Post-mortems can provide iterative learning for future integrations. "[A] company’s ability to put its employees in the best position to be productive and successful will define the winners in the next generation of business combinations.”
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