Despite its poor reputation in the academic and business press, acquisition usage has grown rapidly during the past decade. In fact, the value of completed mergers and acquisitions reached $2.2 trillion worldwide in 2001, as a result of over 21,000 deals.
Though this figure is lower than 2000s M&A record high, the apparent decline is in fact a reduction in the magnitude of acquisitions, accompanied by smaller reduction in their frequency. Even considering the value of acquisitions, global activity in 2001 still exceeded historic levels for all but the most recent years.
In this recent article for European Business Forum, Will Mitchell (the J. Rex Fuqua International Management Professor, Fuqua School of Business, Duke University) and Laurence Capron (Associate Professor of Strategy and Management, INSEAD) examine acquisitions as a tool for business change.
Citing a wide range of corporate examples, they consider the effects of acquisition and predict that it will remain common even during the current economic slowdown. For strong firms, struggling firms represent opportunities to grow product lines and extend operations. For other companies, mergers provide an opportunity to change the terms of competition in their industry. Acquisitions, argue the authors, are a strategic tool in all economic conditions.
After reviewing work in the field, they analyze acquisition strategies, offering concrete and practical advice for managers by focusing on two multi-part stages: assessing acquisitions opportunities and integrating targets.
For the first stage, the authors argue that it is vital to identify responsibility for your acquisition strategy, develop an acquisition-vision, recognize potential targets and price ranges, learn value of your target to you, and to stick to your terms (walking away from the deal if necessary).
For the second stage, they stress that success will be best achieved by creating integration teams with people from both the target and acquiring firms, avoiding post-acquisition lethargy through quick wins, reconfiguring both firms, divesting obsolete capabilities, integrating people and aligning incentives, and regular (re)assessment.
Professors Mitchell and Capron conclude that acquisition activity is among the most powerful tools for change. Done well, it establishes a strong basis for growth and survival. Done badly, it leads to firms decline and failure. Thus, managers must learn to use acquisitions effectively or risk damaging their work and careers.
European Business Forum, Spring 2002