Programmatic Acquisitions: Key Actions for Value Creation
Introduction: Companies that adopt a programmatic approach to mergers and acquisitions (M&A) exhibit a distinct advantage in shareholder returns. This approach involves strategic actions that differentiate them from their counterparts, leading to enhanced performance.
Key Actions of Programmatic Acquirers:
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Expansion Beyond Core Business: Effective programmatic acquirers diversify their acquisitions by venturing into adjacent sectors within their current industry and stepping out into sectors beyond their core. This proactive approach anticipates natural market declines and targets areas of high growth, leading to faster growth rates compared to non-programmatic acquirers.
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Strategic Rationale: Programmatic acquirers articulate a broader range of value-creation rationales, going beyond traditional justifications like expanding product lines or improving procurement efficiency. They strategically pursue scale, margins improvement, vertical integration, acquiring undervalued companies, consolidating industries, and realizing economies of scale.
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Focus on Value Over Price: Programmatic acquirers prioritize creating value over securing deals at lower prices. They are willing to pay premium prices for acquisitions, provided the value created surpasses the acquisition cost, including synergy realization. This approach indicates confidence in their strategies and ability to generate returns.
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Active Divestment: Contrary to empire building, programmatic acquirers actively divest underperforming businesses. This practice allows them to reallocate capital efficiently for acquisitions, complementing growth with strategic pruning. Active divestment contributes significantly to excess total shareholder return (TSR).
Value Creation Through Programmatic M&A:
Programmatic acquirers achieve superior TSR by continuously repositioning their business portfolios through M&A. This approach contrasts with large-deal acquirers, who focus on turning their expanded top lines into excess TSR through margin improvements from scale synergies. While programmatic acquirers maintain revenue growth parity with non-programmatic counterparts, they excel in valuation multiples, indicating investor optimism about their future growth prospects.
Conclusion: Implementing a programmatic approach to M&A enables companies to create sustainable value by strategically expanding their portfolios, articulating robust value-creation rationales, focusing on value over price, and actively managing their holdings. These actions, when executed effectively, contribute to superior shareholder returns and competitive positioning.
