Corporate acquisitions, mergers, combinations, and divestitures have developed over centuries, together with corporations themselves. The goal has consistently been value creation.
There is no question that a combination of two companies can create synergies—which is why an acquirer needs to be diligent, and artful, in realizing them. A thoughtful acquirer also understands that its determination is about more than just the synergies it can realize from the deal. It weighs the value that could have been realized for the corporation and its shareholders if the deal price (and costs) were invested in other initiatives, used for share repurchases, or released as dividends to shareholders.
Companies are more likely to be successful dealmakers when they have a strategy-based perspective, develop a robust M&A capability, and think in terms of long-term value creation. A company may create more value by divesting through selling, splitting off, or spinning off businesses for which it isn’t the best owner (assuming that the price received is fair value). A company may be best served by entering into a joint venture or alliance. Or, of course, the planned acquisition may make the most sense after all—not least by helping a company improve its digital capabilities or enter an emerging market—so long as value-creating fundamentals are adhered to. While forgoing deals and choosing to grow organically is also always an option (and may be the best decision for a company given its unique circumstances), in the aggregate, companies that keep a dynamic portfolio have serially outperformed those that do not.
