In the first decade of the century, M&A was an essential part of successful strategies for profitable growth. Many companies succeeded in delivering superior shareholder returns using M&A as a weapon for competitive advantage. M&A strategy done right, especially with a repeatable model built upon a disciplined M&A capability, creates value.
What we do
Our M&A consultants work with companies to make mergers and acquisitions succeed and deliver superior returns by developing a repeatable model that is tied to the company’s strategy and customized to its experience. We help companies position themselves to take advantage of the global macro trends and capital abundance that are placing increasing pressure on them to grow.
Our analysis and years of experience indicate that M&A creates the most value when it is frequent and material over time. Those companies that have a repeatable model and institutional discipline to find, diligence and integrate companies over and over again – what we call Mountain Climbers – are the companies that far and away outperform in the marketplace.
From 2000 through 2010, total shareholder return (TSR) averaged 4.5% per year for a large sample of publicly traded companies around the world. Dividing this sample according to companies’ M&A activity, here’s what we observe:
- Players outperform bystanders. As a group, companies that engaged in any M&A activity averaged 4.8% annual TSR, compared with 3.3% for those that were inactive.
- Materiality and acquisition frequency matter—a lot. Companies that did a lot of deals outperformed the average most often when the cumulative value of their acquisitions over the 11-year period amounted to a large percentage of their market capitalization. Meanwhile, companies engaged in a modest amount of M&A and those that swing for the fences hoping to improve their business with a couple of big hits failed to deliver the highest returns.
- The gold standard of M&A is a repeatable model. Companies that built their growth on M&A—those that acquired frequently and at a material level—recorded TSR nearly two percentage points higher than the average.
Bain’s approach to mergers and acquisitions consulting and acquisition strategy is based on four ideas:
- The evidence to use M&A to drive growth is compelling.
- M&A should be an extension of a company’s growth strategy and standing pat is not an option.
- Companies should 'plan for opportunity', long before any opportunity arises.
- M&A programs should be built around frequent, continuous deal-making and initially focus on small acquisitions.
An acquirer’s expertise in finding, analyzing and executing the transaction, and then in integrating the two companies when the deal is done, determines the success of the typical deal. Frequent acquirers create a repeatable model for M&A, one that they return to again and again to launch and negotiate a successful deal.
The best acquirers understand the elements of this repeatable model and develop a variety of skills. Frequent acquirers:
- Create an M&A plan that reinforces their strategy.
- Develop a deal thesis based on that strategy for every transaction. The thesis spells out how the deal will add value both to the target and to the acquiring company.
- Conduct thorough, data-based due diligence to test their deal thesis, including a hard-nosed look at the price of the business they are considering.
- Plan carefully for merger integration. They determine what must be integrated and what can be kept separate, based on where they expect value to be created.
- Mobilize to capture value, quickly nailing the short list of must-get-right actions and effectively executing the much longer list of broader integration tasks.