Mergers and acquisitions (M&A) has always been a leading tool companies turn to for growth. And contrary to conventional wisdom, most M&A deals do create value. However, there’s still plenty of room for improvement. How can companies increase their chances of not just creating value, but generating optimal value, from M&A? The keys lie in disruption, timing and size: Companies that focus on targets with disruptive digital technologies or business models, acquire at the beginning of an economic upswing (such as where we are today), and concentrate on large deals generate the highest Total Return to Shareholders (TRS) from each deal.
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Sizing up M&A value. Now.
Go digital, go now, and go big
OVERVIEW
KEY FINDINGS
Our research found that three factors have the greatest influence on a successful M&A strategy, as measured by Total Return to Shareholders (TRS):
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Digital disruption: M&A in industries being most disrupted by digital tend to create more value than those in less-disrupted industries. For instance, median M&A TRS is highest in the banking and communications industries and lowest in oil, gas and utilities, and media and entertainment.
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Timing: Timing of an acquisition is the most reliable predictor of its success. Deals announced during the upswing of a macroeconomic cycle average 13 percent to 15 percent return compared with deals announced during a trough, which averaged -5 percent to 6 percent.
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Size: Deals involving greater than $15 billion and less than $25 billion in transaction value returned the most: between 18 percent and 20 percent. Deals outside that range delivered between 0 percent and 12 percent.
RECOMMENDATIONS
To enhance their chances of generating the greatest returns, acquisitive companies should keep three things in mind when considering their next move:
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Go digital
Companies should seek acquisition targets that would benefit from or are already introducing digital disruption into their industries. -
Go now
With the global economy currently in nascent recovery, now is the time to act. -
Go big
Avoid small, bolt-on deals or tuck-in acquisitions and make attractive targets in the sweet spot of $15 billion to $25 billion top priority.
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