Strategic Corporate Finance: Applications in Valuation and Capital Structure

HOW “SERIAL ACQUIRERS” CREATE VALUE

Markets reward serial acquirers for their growth strategies, providing further empirical support for the advantages of a dynamic M&A strategy over the longer term. We define serial acquirers as companies that executed more than five M&A transactions, including divestitures, from 1992 to 2004; we define one-time acquirers as companies that executed only one M&A transaction, including divestiture. Serial acquirers outperform one-time acquirers across longer-term time horizons.

Successful serial acquirers tend to incorporate many of our previously discussed key success factors in their acquisition strategy. For example, serial acquirer acquisition tends to be more attractive. Their targets demonstrate higher growth, profitability, and valuations. Serial acquirers are twice as likely to make acquisitions of targets with revenue less than 25 percent of their own revenue when compared to one-time acquirers; though in absolute terms, they were similar.

One study of sample serial acquirers found that 82 percent of all acquirers chose targets that had a relative size of less than 20 percent, that 76 percent used cash (hybrid deals are included in cash), and that 85 percent acquired private companies (includes sale of subsidiary).26 Other studies found that serial acquirers tended to buy targets with faster revenue growth.27

Serial acquirers exhibit more conservative financial policies, providing increased financial strength to support business growth. ...