SOURCE: The Boston Consulting Group

The Boston Consulting Group

October 12, 2015 03:30 ET

Strategic Acquirers Create More Value Than Nonacquisitive Companies

Frequent Acquirers Enhance Value for Shareholders Over 5-Year, 10-Year, and 25-Year Time Frames, While One-Timers Drag Down Deal Success Averages, BCG 2015 M&A Report Shows

MUNICH, GERMANY--(Marketwired - Oct 12, 2015) - While more than half of all corporate acquisitions destroy value, companies that are frequent acquirers far outperform both one-time acquirers and nonacquirers in creating value for their shareholders, according to a new report by The Boston Consulting Group (BCG). Experienced acquirers also grow significantly faster -- on both the top and bottom lines -- than companies that rely only on organic growth. BCG's 2015 M&A report, titled From Buying Growth to Building Value: Increasing Returns with M&A, is being released today.

In connection with its 2015 M&A report, BCG analyzed total shareholder returns (TSR) of some 19,000 companies in the firm's M&A database. BCG compared the annual TSR for 5-year, 10-year, and 25-year periods for three types of companies: "one-timers" (companies that make only one acquisition in a five-year period), "active buyers" (two to five deals in a five-year period) and "portfolio builders" (more than five deals in five years).

"Active buyers and portfolio builders achieved annual TSR rates substantially higher than those attained by one-timers and also much higher than companies pursuing only organic growth," said Jens Kengelbach, a BCG partner, global head of M&A at BCG, and a coauthor of the report. "Over the 25 years from 1990 through 2014, for example, portfolio builders and active buyers realized an average annual TSR of 11.6 percent and 8.8 percent, respectively, while the average annual TSR of one-timers and nonacquirers was 3.5 percent and 5.6 percent, respectively. Comparisons yielded similar results over ten- and five-year time frames."

Because so many deals involve one-time acquirers, these transactions drag down the overall averages. In the 25-year period assessed, the typical deal generated a relative TSR of only 4 percent for the first year after the announcement date, and only 47 percent of all deals performed above this mark. One-timers saw an average relative TSR of only 2 percent, and just 43 percent of such deals produced a positive shareholder return. Active buyers and portfolio builders realized an average one-year relative TSR of 6 percent and 8 percent, respectively, and more than half of the deals that involved these acquirers created positive returns for their shareholders.

"Two big differentiators for successful acquisitions are selectivity and effective postmerger integration," said Georg Keienburg, a BCG principal and a coauthor of the report. "The average acquirer reviews roughly 20 candidates before closing a deal. At the same time, for the vast majority of companies, acquisitions are infrequent events, and PMI is one of the most difficult challenges that senior executives face. In most organizations, PMI is not a core skill, and inexperienced management teams often find that they overestimated their preparedness or underestimated the challenges."

BCG's research also found that acquisitive companies have higher EBITDA growth rates. Over the same 25-year time frame, nonacquisitive companies increased EBITDA at the same rate as they increased sales -- an average of 9 percent. Acquirers increased EBITDA faster -- an average of 15 percent -- and, once again, the more companies they acquired, the faster the absolute earnings increased (up to 22 percent for companies that made more than five acquisitions in a five-year period). But for acquirers, growth in EBITDA was, on average, slower than growth in sales -- by 1 to 3 percentage points (again, depending on the number of acquisitions made.)

"Acquisitions are good for growth and good for value, but only if you are good at acquisitions," said Kengelbach, who is also the global leader of the BCG Transaction Center. "The data show that acquisitions tend to be margin dilutive, so the more experienced the acquirer, the better its chances of overcoming the margin challenge. The challenges companies face are not necessarily proportional to the size of the transaction. Many acquisitions fail to realize their potential -- and plenty just flat out fail -- even in high-growth markets because of unsuccessful PMI."

A copy of the report can be downloaded at www.bcgperspectives.com.

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or gregoire.eric@bcg.com.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 82 offices in 46 countries. For more information, please visit bcg.com.

About bcgperspectives.com
Bcgperspectives.com features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management's agenda. It also provides unprecedented access to BCG's extensive archive of thought leadership stretching back 50 years to the days of Bruce Henderson, the firm's founder and one of the architects of modern management consulting. All of our content -- including videos, podcasts, commentaries, and reports -- can be accessed by PC, mobile, iPad, Facebook, Twitter, and LinkedIn.

Contact Information

  • The Boston Consulting Group
    Eric Gregoire
    Global Media Relations Manager

    Tel +1 617 850 3783
    Fax +1 617 850 3701
    gregoire.eric@bcg.com