M&A strategies run deeper than the press headlines

Implications: This article, like most others written about M&A’s, assumes acquisitions are conducted purely to enhance a company’s revenue stream. Most purchases of this nature are in fact completed to either take out a competitor (negating market share erosion), expand a product line (which may be unproven depending on the stage of the acquiree), expand international markets (assuming traction and synergies), or use of idle funds.

Analysis:

As pessimistic as this sounds, many, if not most, acquisitions are conducted for one of the following reasons; companies pursue competitors, they want to expand without spending dollars on unproven markets, they want new revenue overseas, and/or they have idle funds collecting money market rates. This doesn’t mean the acquisition can’t have a positive return for the shareholder. If the strategy is detailed and the integration is completed correctly success can be achieved. Chances are a fast moving acquisition company has a high-profile person designated to acquisition, but has little bandwidth to integrate new purchases. As the acquirer moves towards its next target, the company hasn’t spent the time nor energy on fully integrating the last purchase. Thus failure is imminent. Taking over a competitor, expanding markets or product lines, and making better use of cash are good strategies. The problem lies in the execution of the strategy. So, when all else fails, tout the year-over-year revenue growth. That makes for a good story.