About 40% of Big-Company Mergers Require a Turnaround; Risks are Big, but Rewards Can be Greater, According to BCG TURN Report That Brings to Life Eight Successes
BOSTON—The mergers of Groupe PSA and Opel, Sanofi and Genzyme, and Office Depot and OfficeMax show that speed and fast cash generation are paramount in making mergers with troubled companies succeed—and paying big returns, even in the current M&A environment, with valuations at record levels.
This insight is meaningful, as about 40% of big-company mergers require some kind of turnaround, according to Lessons from Eight Successful M&A Turnarounds, a report from BCG TURN, Boston Consulting Group’s (BCG’s) rapid performance acceleration and turnaround unit. It explores large deals in which the target was at least half the size of the buyer in revenue and the target’s profitability lagged its industry by at least 30%.
“Deals in which a turnaround is a must for success are a category of mergers that deserve more attention. They have much greater variation in outcomes and the risks are greater, but the potential returns can be greater, too,” said Lars Fæste, global leader of BCG TURN and a report coauthor. With M&A valuations at record levels and companies paying top prices for deals, the focus for these deals require is especially important.
Ib Löfgrén, another coauthor and BCG TURN partner, added, “M&A is tough, but it’s tougher when it involves an underperforming asset that needs a turnaround. However, there are some common factors that can increase the odds of success.”
Löfgrén said that some of the musts of turnaround M&A deals that often get neglected are: the acquirer funding the turnaround through “quick wins” that deliver cash to the bottom line, including reducing costs and increasing efficiency of operations quickly; pivoting from cost-cutting to growth measures so there are medium-term wins; and focusing, when appropriate, on upgrading processes with AI and investing in R&D to ensure long-term growth.
More broadly, the report concludes that successful turnaround M&A deals involve the following:
The stories of the following value-creating turnaround mergers illustrate these approaches in action:
Other successful turnaround mergers that the report explores are Coope Norge and ICA Norway (retail grocery); Charter Communications, Time Warner Cable, and Bright House Networks (media); Konecranes and MHPS (industrial equipment), and Myer Werft and Turku Shipyard (shipbuilding).
“What should not be lost when assessing successful turnaround mergers—which are hard but carry significant opportunity—is that the most adept acquirers not only focus on speed, early wins, and a strong plan, but also address culture upfront and make sure the organization is oriented around collaboration and accountability,” said Löfgrén.
A copy of the report can be downloaded here.
To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or email@example.com.
BCG TURN is a special transformation and turnaround unit of Boston Consulting Group that works with business leaders to deliver rapid, sustainable, and visible performance improvements, while strengthening their organizations and positioning them to win in the years ahead. By collaborating shoulder to shoulder with the client and being a true performance partner, BCG TURN achieves change that lasts. Team members include BCG TURN experts such as former CEOs, C-suite leaders, and other highly experienced professionals. BCG TURN is fully integrated into BCG and fully leverages the breadth of BCG expertise, networks, data, and tools. For more information about BCG TURN and the BCG TURN approach, please visit us here.
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we help clients with total transformation—inspiring complex change, enabling organizations to grow, building competitive advantage, and driving bottom-line impact.
To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deep industry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive.