Executives may talk a good game when it comes to pursuing target opportunities when the economy tanks, but few it appears follow through with a tangible strategy. That's according to
Mehrdad Baghai, Sven Smit, and S. Patrick Viguerie, authors of The Granularity of Growth, who's article in the latest McKinsey Quarterly warns companies against letting
a desire to "protect its balance sheet" dictate in tough times.
The authors studied 200 global companies and found that an aggressive acquisition stategy - defined as growth through M&A at a rate higher than that of 75% of a company's peers - is the most effective way to grow during a downturn. Divesting actually destroyed shareholder. Further, fewer than half the companies studied made acquisitions during difficult economic times versus doing deals in times of economic prosperity. The same was true for divesting. More companies sold businesses when times were tough than during an upturn.
Put simply, "Companies were more likely to buy high and sell low than the other way around." An aggressive M&A strategy certainly doesn't make sense for everyone, but as Baghai, Smit and Viguerie note "countercyclical investment can separate the leaders from the also-rans." -
Suzanne Stevens
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