Twelve years of data shows that mergers and acquisitions that apply or enhance capabilities produce superior returns.
by J. Neely, John Jullens, and Joerg Krings
Great article that affords insight that M&A can enhance organic growth when it is capability driven, wither leveraging your current capability platform or adding on to it.
Danaher’s success in M&A stems from the fact that it knows its area of greatest strength — an approach to continuous operational improvement known as the Danaher Business System — and concentrates on targets that can benefit from it. Put another way, Danaher is acapabilities-driven acquirer that leverages its capabilities across its many acquisitions. And as it turns out, focusing on targets that leverage one’s capabilities provides the greatest chance of M&A success, not just for Danaher but for any big company at just about any point in time….
…This is the main lesson that emerges from Strategy&’s most recent study on the role of capabilities in M&A success. When we examined 540 major global deals in nine industries announced between 2001 and 2012, we found that deals that leveraged the buyer’s key capabilities or helped it acquire new ones produced significantly better results, on average, than local stock market indexes in the two years following the deal…
…In our schema of M&A, deals fall into three categories: leverage, enhancement, and limited fit. Leverage deals are situations in which acquirers buy companies that they know or believe will be a good fit for their current capabilities system; for instance, a big pharma company buys a smaller competitor in order to extend its marketing capabilities in a therapeutic area both companies serve. Enhancement deals are designed to bring the acquirer capabilities it doesn’t yet have and that will allow it to intensify its own capabilities system. Limited-fit deals occur when the acquirer largely ignores capabilities; the transaction doesn't improve upon or apply the acquiring company's capabilities system in any major way.