A proactive, programmatic approach to M&A continues to be a winning growth strategy for many organizations (programmatic M&A is when companies regularly and systematically pursue multiple small or medium-size acquisitions). According to partner Paul Daume and colleagues, even high-growth companies that did not pursue programmatic M&A as part of their dealmaking strategy were still outperformed by high-growth programmatic acquirers.
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A 2-by-2 grid reveals the contrasting effectiveness of programmatic and organic acquirers’ approaches to M&A, as reflected by their TSR measured by excess revenue growth (ERG). Programmatic acquirers with positive ERG outperform their counterparts, showing a median TSR of almost 5%. In contrast, organic acquirers with a negative ERG show a decline of 4.4%, the poorest performance on the grid.
Footnote 1: Companies that were among the top 2,000 by market cap as of Dec 31, 2012, with a market cap greater than $2.5 billion, and were still trading as of Dec 3, 2022. Excludes companies headquartered in Latin America and Africa.
Footnote 2: The delta between company 10-year revenue compound annual growth rate (CAGR) and the median revenue CAGR of artificial index composed of the same Global 2,000 companies by sector.
Source: Global 2,000 (2022); S&P Global; Corporate Performance Analytics by McKinsey.
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To read the survey, see “The seven habits of programmatic acquirers,” August 24, 2023.