Getting M&A Right

This chapter provides a broad introduction to the topic of growing a business through the acquisition of others—the main form of growth for medium and large businesses. It explores the research behind the assertion that M&A activity is fraught with risk and frequently destroys value. Using numerous examples, it ascertains that large deals frequently not only threaten the acquiring business but also the tenure of senior management. In considering the question of why businesses still pursue growth through M&A despite its notorious difficulties, it addresses the complex reasons for failure, identifies specific risks and suggests how their impact might be mitigated. This chapter seeks to demonstrate that better M&A outcomes are achievable but require insight, strategy and careful planning. The instigating mechanisms of growth and multiple arbitrage of valuations are examined more closely, ascertaining how these processes can be used to their best advantage to create market value. This chapter goes on to outline the private equity approach and how it has historically and consistently produced high levels of performance and delivers better returns to shareholders. This poses a question fundamental to this book—namely, what can be learnt from this rapidly expanding approach.