Strategic Growth Options and Respective Risk Profiles

This foundational chapter considers different strategic approaches to business growth by M&A, their implications for integration and the likelihood of a successful outcome. Each of the six core strategies identified is pivotal in deciding the subsequent integration approach. These diagnostic routes are supported by established research and exemplified through recent case studies. The most popular, yet also most risky strategy of ‘bulking up’ through the acquisition of direct competitors is presented here with objective pragmatism. In theory, this approach creates greater market presence, overall lower costs and competitive advantage at a rapid pace, but the research suggests that this is often not the case. This method of growth is compared to more conventional, typically lower risk strategies such as finding new markets for products or extending current product ranges. Acquiring the knowledge and capabilities to develop new approaches to markets is an important rationale for most acquisitions. The less successful strategies of unrelated diversification and ‘mergers of equals’ are evaluated using essential research insight, pertinent case studies and personal experiences. Together these locate the main sources of value destruction during M&A, including overconfident acquisition strategies and CEO hubris. Vertical integration—arguably one of the more accessible growth strategies—is also notorious for failing to achieve expectations. After evaluating this problematic approach, the chapter goes on to develop a criterion with which to assess when and where this strategy is likely to succeed. This discussion arrives at the commonly experienced ‘mirage’ of synergies at the heart of Mark Sirower’s ‘The Synergy Trap.’ The chapter ends on a cautionary note, highlighting how proposed synergies frequently evaporate once the deal is done.