Five Types of Successful Acquisitions
McKinsey on Finance
Number 36, Summer 2010 Perspectives on Corporate Finance and Strategy 2 The five types of successful acquisitions 10 McKinsey conversations with global leaders: David Rubenstein of The Carlyle Group 21 Why Asia’s banks underperform at M&A 25 Five ways CFOs can make cost cuts stick
8 A singular moment for merger value?
32 The right way to hedge
2
The five types of successful acquisitions
Companies advance myriad strategies for creating value with acquisitions—but only a handful are likely to do so.
Marc Goedhart, Tim Koller, and David Wessels
There is no magic formula to make acquisitions successful. Like any other business process, they are not inherently good or bad, just as marketing and R&D aren’t. Each deal must have its own strategic logic. In our experience, acquirers in the most successful deals have specific, wellarticulated value creation ideas going in. For less successful deals, the strategic rationales—such as pursuing international scale, filling portfolio gaps, or building a third leg of the portfolio—tend to be vague. Empirical analysis of specific acquisition strategies offers limited insight, largely because of the wide variety of types and sizes of acquisitions and the lack of an objective way to classify them by strategy. What’s more, the stated strategy may not
even be the real one: companies typically talk up all kinds of strategic benefits from acquisitions that are really entirely about cost cutting. In the absence of empirical research, our suggestions for strategies that create value reflect our acquisitions work with companies. In our experience, the strategic rationale for an acquisition that creates value typically conforms to at least one of the following five archetypes: improving the performance of the target company, removing excess capacity from an industry, creating market access for products, acquiring skills or technologies more quickly or at lower cost than they could be built
Number 36, Summer 2010 Perspectives on Corporate Finance and Strategy 2 The five types of successful acquisitions 10 McKinsey conversations with global leaders: David Rubenstein of The Carlyle Group 21 Why Asia’s banks underperform at M&A 25 Five ways CFOs can make cost cuts stick
8 A singular moment for merger value?
32 The right way to hedge
2
The five types of successful acquisitions
Companies advance myriad strategies for creating value with acquisitions—but only a handful are likely to do so.
Marc Goedhart, Tim Koller, and David Wessels
There is no magic formula to make acquisitions successful. Like any other business process, they are not inherently good or bad, just as marketing and R&D aren’t. Each deal must have its own strategic logic. In our experience, acquirers in the most successful deals have specific, wellarticulated value creation ideas going in. For less successful deals, the strategic rationales—such as pursuing international scale, filling portfolio gaps, or building a third leg of the portfolio—tend to be vague. Empirical analysis of specific acquisition strategies offers limited insight, largely because of the wide variety of types and sizes of acquisitions and the lack of an objective way to classify them by strategy. What’s more, the stated strategy may not
even be the real one: companies typically talk up all kinds of strategic benefits from acquisitions that are really entirely about cost cutting. In the absence of empirical research, our suggestions for strategies that create value reflect our acquisitions work with companies. In our experience, the strategic rationale for an acquisition that creates value typically conforms to at least one of the following five archetypes: improving the performance of the target company, removing excess capacity from an industry, creating market access for products, acquiring skills or technologies more quickly or at lower cost than they could be built