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Cost-Cutting vs. Revenue Growth – The Deal Determines the Process

by on August 21, 2013

Multiple dealsThe best M&A shops do more than 1 deal a year.  In fact not so long ago an active year meant 3-4 major deals a year, typically focused on the benefits of industry consolidation and cost cutting.  Today, the landscape has changed.  The best M&A shops do 10 to 20 smaller deals in the same amount of time, often simultaneously. And just for fun they’ll throw in a major deal.

The objective today is to combine a number of complementary deals into a single strategic platform to pursue growth.  The thought process is that it’s better to acquire a string of smaller businesses and put them together into a unit whose growth potential exceeds the sum of its parts.

To do that many deals a year you have to have good processes. The best M&A shops adapt that process to the deal or, put another way, the deal determines the process.

Many deals under perform because companies take a one-size-fits -all approach to them.  They use the same process to integrate deals made for back-office cost synergies as they do for deals done to ramp up sales.

These kind of deals, specifically those focused on raising revenues or building new capabilities, require fundamentally different approaches to sourcing, valuation, due diligence, and integration.

It is therefore critical for companies to understand what types of deals they seek for shorter-term synergies  or longer-term revenue growth.  To do that the company must know what types of deals it’s capable of executing.  Most companies have a style or skill-set.  Are they best at cost-cutting deals or revenue-generating deals?  And then they have to determine if a particular transaction is inline with the company’s norm and capabilities.

The picture below lays out the different types of M&A deals and aligns them against whether or not they are focused on cost cutting or revenue growth.

Types of M&A Deals

Companies with successful M&A programs will adapt their approach to the type of deal they’re doing.

p.s.

If you’re wondering how you build a company that you can sell for a premium in a few years, contact me to discuss the Valuation Amplification Process.

I also invite you to download the white paper and learn the 5 step process on How to Quickly Increase Your Valuation: a Proven 5 Step Process.  http://www.therevenuegroup.net/free-offer.html

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From → M&A, Strategy

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