Page 155 - Accelerating out of the Great Recession

ACCELERATING OUT OF THE GREAT RECESSION

more damaging when deployed in a low-growth environment.
Companies that stick with tradition and deploy solely defensive
strategies risk losing out.

■ INVEST IN THE FUTURE THROUGH OPPORTUNISTIC ■

M&A AND STRATEGIC DIVESTMENTS
One of the most formidable weapons that companies can use is
the restructuring of the corporate portfolio—either growing it
through mergers and acquisitions (M&A) or pruning it
through strategic divestments.

Conduct Opportunistic M&A
Often, the most effective strategy to achieve growth in a slug-
gish industry is to acquire weaker competitors. While this is
easier said than done, M&A activity can become more effective
during a recession when premiums are lower and opportunities
are richer. Downturns can present unique and inexpensive
opportunities to acquire rivals that find themselves credit con-
strained. A study conducted by The Boston Consulting Group
reveals that, on average, deals completed during downturns out-
perform those completed during upturns by 14 percentage
points on the basis of relative total shareholder return.
Gannett Company used such a strategy to gain scale during
the recession in the United States in the 1970s. The recession
had delivered a twin blow to the newspaper industry—squeez-
ing revenues while causing costs to rise rapidly. Gannett used
the opportunity to acquire small local newspaper chains that
were on the verge of bankruptcy. Through the acquisitions, the

■ 134 ■