In today's environment of low, slow growth, acquisitions are an attractive way to add growth to your company. But doing so effectively can be challenging, according to a new report from the Boston Consulting Group.
"Companies can indeed transact their way to value creation, but it takes practice and a commitment to M&A as a strategic lever of the same sort as innovation or geographic or market expansion," the report notes.
Based on analysis of its database of deals going back to 1991, BCG found that most deals have an immediate positive impact, but for most dealmakers, "early performance does not hold up." The exception is a group BCG calls "portfolio masters" – serial dealmakers that "use M&A as an instrument to routinely rebalance" their businesses, not just add to them.
"The biggest difference between portfolio masters and less experienced M&A dealmakers is their insight into the associated deal risk," BCG notes in Are M&A Deal-Making Skills Value-Creating Skills? Their experience with doing deals on a regular basis tends to translate into a more ingrained strategic approach to each deal. It builds on the old adage: Practice makes perfect.
For long-term positive impact, distributors need to approach every stage of an acquisition strategically, from due diligence to long-term integration plans. (Read more in the MDM Special Report: 2015 M&A in Distribution.)
In volatile and uncertain markets, such as the one we're all operating in right now, that meticulous, strategic approach is more important than ever. While the pace of deals may seem slower right now, that's because 2015 was a record year for many sectors. (Energy was the only sector to post declines in volume.) According to BCG, first-half M&A levels are on par with the 10-year average.
"Investors are looking for new value-creation strategies in a world of low GDP growth and limited opportunities," BCG notes. Strategic acquirers aren't just looking for a boost in sales, they're looking to add skill sets and technology alongside new customers and opportunities. Strategic M&A requires a broader perspective than it used to.