Chapter 3 Can mergers and acquisitions definitely bring growth to enterprises?

If the political scientist James Flynn is correct that the IQ of people in the developed world improves by about 3 points every 10 years, then in January 2007 we should have achieved the second of the 3 points expected to increase by 2010 .I'm sure you're feeling better about yourself already. So, will the prospect of a more robust M&A market in 2007, breaking last year's record levels, sustain the New Year's optimism? An article published in the latest issue of the McKinsey Financial Report shows that dealmaking Investors have indeed become better at M&A transactions, and they have learned to avoid the risk of overvaluation and create greater value for shareholders.This analysis coincides with the results of a joint study by Scott Moller of Cass Business School in London and the consulting firm Towers Perrin.Perhaps investment banks and corporate executives are starting to feel the "Flynn effect".

I'm still not entirely convinced that M&A practitioners are newly inspired -- though I'm less skeptical than I was when I wrote about it last May.Even if the overall buoyant start to the new year in global stock markets can be chalked up to expectations that the M&A spree will continue, it should not be taken to mean that all the old problems associated with big-ticket deals have been resolved. The latest research from consultancy Accenture comes at an opportune time, reminding the boldest dealmakers that M&A remains complex, dangerous and unpredictable.The survey of 154 senior managers in the U.S. found that inadequate pre-deal planning still creates a familiar set of real-world problems that often occur during analyst briefings or press conferences to announce mergers and acquisitions. will not be discussed.

Value-destroying issues include: lower-than-planned synergies; disruptions in the supply chain, impacting sales; increased inventory and higher cost of products sold; and declining product quality.And so on. What all business leaders understand (although some choose to forget) is that the most sustainable form of growth is organic growth, where a business grows based on success in the marketplace rather than being buoyed by another deal.But organic growth takes longer, involves a lot of hard and tedious work, and may not be recognized by the stock market, so, ironically, it can make a business vulnerable to the non-organic event of being acquired.No wonder the lure of quick M&A success has proven so many times irresistible.

Academics and consultants sometimes claim that one or two simple advances—either outright disruptive innovations or cultural shifts—can prevent companies from achieving more sustainable growth.But overall, this narrow path is no more conducive to sustained growth than outright acquisitions of smaller competitors. So what do you do? What are the characteristics of businesses that grow organically and continue to grow organically?At the end of last year, the British Mercer Delta Consulting Company published a research report on the so-called "growth champion" - "Determined Growth", and the company's chairman Margaret Exley put forward some suggestions in the report.

Among the 212 American and European companies intercepted, only 23 can win the title of growth champion.Over a 5-year period, these companies have all managed to achieve sustained year-over-year growth, with most increasing revenues, net operating income, and stock prices at twice the rate of the others. Mercer Delta found that among the 23 outperformers, six behaviors were the same.Growth Champions know exactly which areas are their growth areas and how to make money in these areas. These companies execute exceptionally well at all levels and strive to build on that.They make effective trade-offs about investment opportunities.They have a strong measurement culture, use feedback well, and focus on only a few initiatives.

These behaviors are supported by four "cans": growth champions can develop the ability of business leaders to achieve internal growth; can form a culture in which people can adapt to change; can reduce management layers and accelerate decision-making processes; Regional formal forums to lead innovation. These all sound great.But what about the reality? Eckersley was struck by the simplicity of the growth champions. Exley cites Brett White, chief executive of U.S. real estate firm CBRE, as a star witness in his report.She quoted White as saying: "We don't isolate ourselves for a few weeks and work on strategic plans because the business changes faster than planned. We rely very much on experience. We don't talk nonsense and focus on what makes money."

Exley also mentioned Philip Varan, chief executive of steelmaker Corus.Under Varane's leadership, Corus, which was on the brink of bankruptcy in 2002, is now the target of an ongoing £5bn bidding war. "He just asked very directly what the company should be doing," says Exley. "He cut a lot of businesses. It was a very tough but effective approach." Another example of a downsizing business It's Procter & Gamble, which is also shedding some brands year after year. Long-term success is based on clear and firm management decisions.If you want next quarter's report to be more intriguing, it's nice to artificially sweeten it with another deal.But for healthy, more attractive results that last longer, it's time to turn to organic growth.