Article

Deals Done Right

Deal making is back, and deals are bigger than ever.

著者：Catherine Lemire and David Harding

First published on 10月 26, 2005
min read


Deal making is back, and deals are bigger than ever. Global M&A activity, which climbed 41% in 2004, jumped again in the first half of this year, up 43% over the same period last year. A wave of mammoth mergers has driven this resurgence. Deals between giants like Procter & Gamble and Gillette, SBC and AT&T, and Bank of America and MBNA have dominated the M&A landscape in the first six months of 2005. But large deals pose equally large risks. Nearly all studies (including our own at Bain & Company) have shown that only three in 10 big deals create meaningful value for the shareholders who are footing the bill. Half actually destroy value. Although success at deal making isn't easy, many great companies were built on deals. And many deals are clear winners. In fact, Bain's research has found that companies with a strong history of dealing earn higher shareholder returns than those that do few deals or none at all. Think of GE, Cisco, Johnson & Johnson, Washington Mutual, and Fiserv, just to name a few. All of those companies have flourished through smart deal making. It's a classic damned-if-you-do-damned-if-you-don't conundrum. How do the successful acquirers overcome this catch-22? By employing specific tactics and behaviors that improve the odds that their mergers will succeed. Build expertise with lots of small deals. Rather than engaging in complex mega-mergers, top deal makers execute a series of smaller, lower-risk deals. They sharpen their skill at acquiring and integrating companies, gradually moving up to larger deals, and institutionalizing a success formula. That helps them avoid mistakes made by first-time and infrequent acquirers—mistakes that cost their shareholders dearly. Stay close to the core business. Our work with clients and our research repeatedly underscore the value of using deals to bolster a company's core business as opposed to moving into far-flung adjacencies. Deals that grow a company's scale by adding similar products or customers (such as British Petroleum's acquisition of Amoco) have a higher probability of success. Deals that expand a company's scope by adding new customers, products, markets, or channels (like Newell's acquisition of Rubbermaid) often disappoint. Invest with a thesis. Successful deal makers develop a clear investment thesis, a statement that explains why and how an acquisition will make the current business stronger. The stock market is good at detecting deals with a poor investment thesis. If an acquirer's stock drops more than 10% relative to industry peers just after a deal announcement, odds are 75% that the share price will still be down one to two years out. Ask and answer the big questions in due diligence. Too often, due diligence is little more than an audit, collecting reams of data but failing to tell executives what they need to know to decide whether to consummate the deal. Top deal makers zero in on the big questions, the ones that, once answered, will demonstrate whether the investment thesis will pan out. What's critical in due diligence isn't how much you know; rather, it's determining what you don't know and should know, and then nailing that information down. Corporate buyers can learn a great deal from private equity firms like KKR, Bain Capital, and Texas Pacific Group. These firms don't assume they know the business they're buying. They take a critical outsider's view of the company and its market and don't take for granted anything about its future prospects. Instead, they answer the big questions by building a view from the ground up, getting the information they need firsthand from customers, suppliers, and competitors. Integrate quickly where it matters. Many companies take a holistic, workplan-centric view of integration. The truth is, only a few integration activities really make or break a deal. Scale deals require extensive integration, so the holistic approach may be valid in such cases, but companies need to hone in first on integration activities that will achieve the largest cost savings or revenue gains. Scope deals call for more selective integration in specific areas where the operations overlap. In all cases, it's critical to move quickly to capture the key sources of value the deal presents. Companies also need to make sure that the merger doesn't distract the workforce; the majority of employees must stay focused on running the base business. Expect the unexpected. No deal goes exactly as planned—the best deal makers expect to hit a few potholes. They install early warning systems to detect problems and tackle them as soon as they emerge. They deliberately distinguish between the inevitable glitches and those signaling that something far more serious is brewing. Here, the need for unsentimental discipline reaches its peak: acquirers must let go of the past, admit errors, and take tough, decisive action to put their deals back on track. The merger in 2001 between cereal giant Kellogg and Keebler, the cookie and cracker maker, is often viewed as a great strategic deal. Kellogg, an experienced acquirer, had a strong investment thesis and performed good operational due diligence. The combination offered significant cost savings and allowed Kellogg to strengthen its position in the rapidly growing snack business. It also gave Kellogg access to Keebler's direct-store-delivery system, which generated higher inventory turnover, and Keebler's superior enterprisewide technology platform. But the Keebler acquisition was also a deal where a lot went wrong. Cultural conflicts arose, key executives left, and a technology conversion disrupted order fulfillment. But management was expert at monitoring the problems and making mid-course corrections. The result: upside wins for investors. The evidence on deals is overwhelming: experienced acquirers who reinforce their base business, have done their homework, and can put businesses together quickly and flexibly earn outsized returns on deals. Executives who don't follow those practices only create outsized headaches. David Harding leads Bain & Company's Global Mergers & Acquisitions practice and is the coauthor of Mastering the Merger (Harvard Business School Press, 2004.) Catherine Lemire is the manager of Bain's Global M&A practice. Bain Book Mastering the Merger Learn more about the core decision strategies that help companies win in M&A.

Deal making is back, and deals are bigger than ever. Global M&A activity, which climbed 41% in 2004, jumped again in the first half of this year, up 43% over the same period last year. A wave of mammoth mergers has driven this resurgence. Deals between giants like Procter & Gamble and Gillette, SBC and AT&T, and Bank of America and MBNA have dominated the M&A landscape in the first six months of 2005.

But large deals pose equally large risks. Nearly all studies (including our own at Bain & Company) have shown that only three in 10 big deals create meaningful value for the shareholders who are footing the bill. Half actually destroy value.

Although success at deal making isn't easy, many great companies were built on deals. And many deals are clear winners. In fact, Bain's research has found that companies with a strong history of dealing earn higher shareholder returns than those that do few deals or none at all. Think of GE, Cisco, Johnson & Johnson, Washington Mutual, and Fiserv, just to name a few. All of those companies have flourished through smart deal making.

It's a classic damned-if-you-do-damned-if-you-don't conundrum. How do the successful acquirers overcome this catch-22? By employing specific tactics and behaviors that improve the odds that their mergers will succeed.

Build expertise with lots of small deals. Rather than engaging in complex mega-mergers, top deal makers execute a series of smaller, lower-risk deals. They sharpen their skill at acquiring and integrating companies, gradually moving up to larger deals, and institutionalizing a success formula. That helps them avoid mistakes made by first-time and infrequent acquirers—mistakes that cost their shareholders dearly.

Stay close to the core business. Our work with clients and our research repeatedly underscore the value of using deals to bolster a company's core business as opposed to moving into far-flung adjacencies. Deals that grow a company's scale by adding similar products or customers (such as British Petroleum's acquisition of Amoco) have a higher probability of success. Deals that expand a company's scope by adding new customers, products, markets, or channels (like Newell's acquisition of Rubbermaid) often disappoint.

Invest with a thesis. Successful deal makers develop a clear investment thesis, a statement that explains why and how an acquisition will make the current business stronger. The stock market is good at detecting deals with a poor investment thesis. If an acquirer's stock drops more than 10% relative to industry peers just after a deal announcement, odds are 75% that the share price will still be down one to two years out.

Ask and answer the big questions in due diligence. Too often, due diligence is little more than an audit, collecting reams of data but failing to tell executives what they need to know to decide whether to consummate the deal. Top deal makers zero in on the big questions, the ones that, once answered, will demonstrate whether the investment thesis will pan out. What's critical in due diligence isn't how much you know; rather, it's determining what you don't know and should know, and then nailing that information down.

Corporate buyers can learn a great deal from private equity firms like KKR, Bain Capital, and Texas Pacific Group. These firms don't assume they know the business they're buying. They take a critical outsider's view of the company and its market and don't take for granted anything about its future prospects. Instead, they answer the big questions by building a view from the ground up, getting the information they need firsthand from customers, suppliers, and competitors.

Integrate quickly where it matters. Many companies take a holistic, workplan-centric view of integration. The truth is, only a few integration activities really make or break a deal. Scale deals require extensive integration, so the holistic approach may be valid in such cases, but companies need to hone in first on integration activities that will achieve the largest cost savings or revenue gains. Scope deals call for more selective integration in specific areas where the operations overlap. In all cases, it's critical to move quickly to capture the key sources of value the deal presents. Companies also need to make sure that the merger doesn't distract the workforce; the majority of employees must stay focused on running the base business.

Expect the unexpected. No deal goes exactly as planned—the best deal makers expect to hit a few potholes. They install early warning systems to detect problems and tackle them as soon as they emerge. They deliberately distinguish between the inevitable glitches and those signaling that something far more serious is brewing. Here, the need for unsentimental discipline reaches its peak: acquirers must let go of the past, admit errors, and take tough, decisive action to put their deals back on track.

The merger in 2001 between cereal giant Kellogg and Keebler, the cookie and cracker maker, is often viewed as a great strategic deal. Kellogg, an experienced acquirer, had a strong investment thesis and performed good operational due diligence. The combination offered significant cost savings and allowed Kellogg to strengthen its position in the rapidly growing snack business. It also gave Kellogg access to Keebler's direct-store-delivery system, which generated higher inventory turnover, and Keebler's superior enterprisewide technology platform.

But the Keebler acquisition was also a deal where a lot went wrong. Cultural conflicts arose, key executives left, and a technology conversion disrupted order fulfillment. But management was expert at monitoring the problems and making mid-course corrections. The result: upside wins for investors.

The evidence on deals is overwhelming: experienced acquirers who reinforce their base business, have done their homework, and can put businesses together quickly and flexibly earn outsized returns on deals. Executives who don't follow those practices only create outsized headaches.

David Harding leads Bain & Company's Global Mergers & Acquisitions practice and is the coauthor of Mastering the Merger (Harvard Business School Press, 2004.) Catherine Lemire is the manager of Bain's Global M&A practice.