Beat the Odds in M&A Turnarounds

Related Expertise: Business Transformation, Divestitures, Due Diligence

Increase Your Chance of Success in Transformative M&A

By Martin ReevesLars FæsteDaniel Friedman, and Hen Lotan

M&A and turnarounds are both increasingly important in today’s business environment. As long-term growth rates trend downward in many economies, business leaders are turning to acquisitions to fuel growth. At the same time, companies face a seemingly endless stream of disruptions from new technology, emerging competitors, shifts in consumer behavior, regulatory changes, and other threats, any of which can hurt performance and trigger a need for significant transformation of both strategy and operations.

M&A deals and turnarounds are difficult on their own, but many companies take on the considerable challenge of combining the two—trying to transform an underperforming target post acquisition. Turnaround M&As account for roughly half of all M&A deals, and that share is likely to increase should the economy experience a downturn—as was the case during the last recession, when turnarounds constituted nearly 60% of all M&A deals.

The BCG Henderson Institute and BCG TURN recently analyzed more than 1,000 turnaround M&As. We found that the stakes are extremely high: successful turnaround M&As achieve postdeal total shareholder return that is around 25 percentage points higher than that of the unsuccessful turnarounds. However, success is hard to achieve: only around 40% of turnaround M&As generate above-average shareholder returns.

Using advanced analytics, we identified a set of deal characteristics and managerial actions that significantly improve the odds of success—such as having a long-term orientation, choosing the right target, and initiating a turnaround program rapidly after the deal closes.

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BCG Henderson Institute Newsletter: Insights that are shaping business thinking.

BCG Henderson Institute Newsletter: Insights that are shaping business thinking.