Insights & Publications

Article|McKinsey Quarterly

Growing through deals: A reality check

The size and frequency of deals matter less than how companies execute them.

April 2011 | byAndres Cottin, Werner Rehm, and Robert Uhlaner

The bigger a company gets, the harder it is to keep up with investors’ expectations for growth. Mergers and acquisitions are essential, but how big do deals need to be—and how frequent? Because a single deal that might double the market capitalization of a small company will scarcely register for a large one, many big companies pursue ever-larger deals—or a whole lot of smaller ones. Does either of those strategies more often lead to success?

Apparently not. Patterns of deal size and frequency have made little difference in performance as measured by excess total returns to shareholders (TRS) among the world’s top 1,000 companies1 by market capitalization. It seems not to matter much whether companies completed one large deal, many small deals, or few deals. In statistical parlance, the distribution of samples reflecting different combinations of deal sizes and market caps was both widely distributed and overlapping. From a value-creation perspective, this finding means that the size and number of deals matter less than the discipline with which they are identified, priced, integrated, and managed.

Exhibit

About the authors

Andres Cottin and Werner Rehm are consultants in McKinsey’s New York office; Robert Uhlaner is a partner in the San Francisco office.

Related articles

fity10_frth_Thumbnail
article

The five types of successful acquisitions

companies advance myriad strategies for creating value with acquisitions—but only a handful are likely to do so.more

Sustaining top-line growth The real picture
article

Sustaining top-line growth: The real picture

a historical view shows that beating markets is tougher than most leaders believe.more

McKinsey Quarterly

McKinsey Quarterly 50th Anniversary art

The Quarterly has been shaping the senior-management agenda since 1964.more

About this content

The material on this page draws on the research and experience of McKinsey consultants and other sources. To learn more about our expertise, please visit the Corporate Finance Practice.