The seven habits of programmatic acquirers

| Survey

There are no ‘sure things’ in any M&A transaction—but there are clear conclusions that one can draw from thousands of deals over the past decades. Among the most prominent is the power of programmatic M&A, which is when companies pursue multiple small or medium-size acquisitions per year as part of their growth strategy. Taking a programmatic approach to dealmaking gives companies the greatest likelihood of generating excess TSR with comparatively low levels of risk. Our latest findings—drawn from both our annual, in-depth analysis of the world’s largest global public companies (what we call the “Global 2,000”) and our most recent McKinsey Global Survey on M&A capabilities1—reinforce and advance more than two decades of research.

Strikingly, we found that programmatic dealmakers with the most deals earned the highest returns: 70 percent outperformed programmatic peers who made fewer deals. Moreover, the gap between programmatic acquirers and companies that take an organic approach widened through the turbulent COVID-19 years (programmatic acquirers created 3.9 percent of excess TSR in the past decade, compared with 2.9 percent in the 2010s). Indeed, even with some of the lowest M&A volumes in recent years,2 the latest research shows that the case for programmatic M&A is stronger than ever.

Our latest research also takes a closer look at companies that operate in high-growth sectors to test whether the case for programmatic M&A remains as compelling: it does. Programmatic acquirers in high-growth sectors outperform their high-growth peers that did not pursue M&A as part of their strategy (that is, an organic approach to M&A).

The case for programmatic M&A

Companies can take one of four approaches to M&A: programmatic, selective, large deal, and organic. A programmatic approach treats dealmaking as a capability and not an event. The continuous process of acquiring and integrating new businesses and divesting nonstrategic ones can improve an organization’s odds of outperforming companies that only do one-off and very large deals, occasionally pursue M&A, and are often reactive in their dealmaking—or largely forgo M&A and choose to grow purely organically.

Our latest Global 2,000 research shows the degree to which programmatic acquirers are outperforming other companies.

Programmatic M&A strategies tend to achieve higher returns than others.

The results are particularly intriguing when compared with the performance of companies that took an organic approach: it might seem counterintuitive for a company in a high-growth business to allocate meaningful resources to deals when it likely has an abundance of internal investment opportunities. As we dug into the details, we found that these programmatic acquirers markedly outperformed organic peers that didn’t enjoy growth tailwinds. But even high-growth organic companies did not, in the aggregate, outperform companies across sectors that took a programmatic approach.

High-growth programmatic acquirers outperform high-growth companies that take an organic approach.

Lessons from programmatic acquirers

The accumulated research suggests important lessons for companies that are engaged in or actively considering M&A. What capabilities and actions set successful dealmakers apart?

Programmatic acquirers confidently allocate capital to M&A opportunities that support their corporate strategy.
Programmatic acquirers zero in on the assets they need to meet their strategic aspirations and keep stakeholders aligned.
Programmatic acquirers use comprehensive business cases to build internal conviction.
Programmatic acquirers are better than other acquirers at setting and capturing synergies.
Deprioritizing culture and organizational health can put deal success at risk.
Programmatic acquirers recognize the power of people.
Programmatic acquirers know when it is time to divest from a business.

Decades of research show the efficacy of programmatic M&A—and our latest findings make it even more clear. Whether external conditions are favorable or challenging, programmatic acquirers continue to invest in their M&A capabilities and demonstrably outperform companies that take a less strategic approach to M&A.

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