Friday, December 7, 2012

STEVEN PHILIP WARNER takes a closer look...

Do their M&A predictions really work? And is there some ‘secret learning’ even they know nothing about? STEVEN PHILIP WARNER takes a closer look...

research be damned!

We started with the yet to be published book titled, Winning in Turbulence, by Darrell Rigby of Bain & Company (thanks to Harvard Business Press). After statistically analysing more than 24,000 deals between 1996 and 2006, the book notes that, “acquisitions completed during and right after the last recession (2001–2002) generated almost triple the excess returns of acquisitions made during the preceding boom.” The book conclusively proves how those companies that are active dealmakers even during downturns, finally outperform those that are not, in the long run! Dr. Sotirios Paroutis, Asst. Prof. of Strategic Management, Warwick Business School, puts his thoughts in a few lines as, “Deals born in recession will be much more robustly constructed as reduced optimism should result in lower prices paid and more emphasis being placed upon certainty, scrutiny and cost-cutting efficiencies.” The ‘secret to success’ was revealed by Pankaj Karna, Partner & Head, M&A, Grant Thornton as, “To focus on strengths and core competencies and your target. Price of the deal is also important as typically deals during a downturn would be largely based on the fundamentals and with limited liquidity...” Well, strong words there, but they weren’t still enough to convince us. And who in the world will believe that deal making is sensible during downturns, especially when even shareholders have shed all optimism about stock-swaps?!

We took a first-hand look at numbers, and were completely taken aback by the difference in opinion... So what was our claim? That companies did not indulge in splurging cash for assets during recession? Well, here are some numbers that we analysed – if we told you that $1.25 trillion and $1.23 trillion are figures that represented deal totals during two equal time-periods, one of which was recession and the other one an upturn, which one would you associate with which cycle? Confusion prevails… but obviously, the higher investments should represent the crest of the macroeconomic wave, right?


Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri

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