M&A Research Shows How Top Growth Companies Boost Revenue
- Merger and Acquisition research found that 94% of the highest growth companies cited acquisitions as an integral part of their growth strategy. This group acquired other companies 42% more frequently than all other lower growth companies.
- The M&A research also revealed the highest revenue growth companies are serial acquirers and complete approximately twice the number of acquisitions compared to all others.
- The top four merger and acquisition goals for the Best-in-Class cohort were all about revenue growth. That stood in contrast to the majority of all other respondents, who cited economies of scale as the second most important goal.
Executives considering new or improved business growth strategies often consider mergers and acquisitions.
These deals serve as a strategic tool to accelerate organic growth, leapfrog competitors, create new revenue streams and quickly boost top line revenues.
The annual increase in merger and acquisition transactions and the sheer volume of deals show that acquisitions are a favored tool among many companies. And M&A research performed for the Business Growth Report found they were cited as one of the top revenue growth drivers used by the highest growth companies (i.e., the top 15%). Below are three findings from the research.
The Highest Growth Companies Use M&A
An initial survey question sought to measure the participants that apply mergers and acquisitions as part of their company growth strategy. The response data is delineated by performance archetype in the below chart.
94 percent of the highest growth companies (i.e., the Best-in-Class, which are the top 15%) cited mergers and acquisitions as a growth strategy. This cohort applied M&A 42 percent more than the combined average of the Median and Laggard cohorts.
When we correlated the data by company size, we found that larger companies (over $1B annual revenue) were 22 percent more likely to cite acquisitions as part of their company growth strategy compared to midsize companies ($100M to $1B). They were 59 percent more likely when compared to smaller companies (less than $100M).
When we correlated the data by industry, we found the healthcare, technology, financial services, media and retail industries most frequently cited this company growth strategy. In fact, in these industries, the data surfaced an atypical pattern whereby a higher proportion of small and midsize companies more frequently engaged in acquiring other companies.
The Highest Growth Companies Are Serial Acquirers
Having a merger and acquisition strategy is one thing. Completing deal transactions is another. So, the survey asked, "How many acquisitions has your company completed in the last 4 years?" The response data is shown below.
The data clearly show that highest growth companies are serial acquirers and complete significantly more acquisitions per same period.
When measuring the number of completed acquisitions over the four-year timespan among all respondents, the median was 2.1 and the average was 1.7. The highest growth companies completed approximately twice the number of acquisitions compared to all others.
The top growth companies perform deals on a periodic and continuous basis. This data aligns with their cited growth strategy. It also aligns with the concept of programmatic M&A, which calls for a regular cadence of small or midsize acquisitions as opposed to periodic big deal transactions.
In fact, according to M&A research from McKinsey, which analyzed 20 years of data, programmatic M&A is the strategy that created the most shareholder value while also reducing acquisition risk.
The Best-in-Class cohort has figured out how to find, acquire, integrate, and realize the revenue upside of acquiring companies on a repeated basis.
The Top Merger & Acquisition Goals
We wanted to measure and prioritize merger and acquisition objectives among performance archetypes. So, the survey asked, "What are the top goals for your M&A strategy?" Response data for all respondents and the highest growth cohort are shown in the below clustered bar chart.
The top four goals for the Best-in-Class cohort were all about revenue growth.
That's not surprising in an M&A research survey designed to identify what the highest growth companies do differently than their lower growth peers. However, the data does stand in contrast to the majority of all other respondents, who cited economies of scale as the second most important goal.
Clearly, this later group places more emphasis on cost takeout and operating efficiencies. But just as clearly, this group is not among the highest revenue growth companies.
When we analyzed the data by company size, the largest companies (over $1B annual revenue) cited economies of scale 16 percent more frequently than midsize companies ($100M to $1B) and 52 percent more frequently than smaller companies (less than $100M).