Strategy Beyond the Hockey Stick
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View SourceThe path that holds the most promise is programmatic M&A. Our research found that the most successful style of M&A executes on average at least one deal per year in a program that cumulatively amounts to more than 30 percent of market capitalization over 10 years, with no single deal being more than 30 percent of market cap. Companies that meet this standard on M&A have cleared the threshold and made a big move.
The findings make sense, considering that M&A requires mastery of capabilities through repeated deals. M&A requires a set of capabilities that are built over time, as a result of practice. Companies that execute programmatic M&A over years, often decades, become true masters of the art of identifying, negotiating, and integrating acquisitions.
Companies that do very few deals struggle to execute well the few they do. Practice makes perfect—the adage holds. Our research has shown that infrequent, large deals tend to hurt value creation.
Corning shows the value of this move. At all times, they seek to maintain a strong M&A pipeline that is about 5 to 10 times their annual target for increasing revenue through acquisitions. Corning understands that doing three deals a year means it has to do due diligence on 20 companies and submit five bids.
Axel Springer and WPP also show the value of programmatic M&A, as we described in a bit of detail in the section on the importance of recognizing and acting on trends.
Axel Springer, the giant German publisher, made a decisive move from print to digital by making 67 mostly small acquisitions between 2006 and 2012, while launching 90 publications organically and divesting itself of eight. The company’s disciplined approach to M&A repositioned it solidly for the digital age and led to a 10 percent CAGR in total shareholder return over the decade.
