Why Programmatic M&A is the Smart Way to Grow Your Business
The common image of a merger or an acquisition (M&A) deal is one where a nine-figure agreement is negotiated for months, surrounded by endless speculation, media buzz, and massive organizational shake-ups.
There’s, however, another approach that is proving to be much more successful and safer than the headline-grabbing mega deals.
A departure from traditional, one-off large deals, programmatic M&A—or programmatic acquisition—is an approach where a business acquires smaller players following a clearly set strategy.
The evidence for programmatic M&A’s effectiveness is compelling. A comprehensive ten-year study by McKinsey & Company, analyzing the top 2,000 global companies with market capitalizations exceeding $2 billion, revealed that 59% of the top 100 companies employed a programmatic acquisition strategy.
These programmatic acquirers didn’t just succeed – they excelled, achieving a median excess shareholder return of 2.1% and outperforming their peers by at least 20% in total shareholder returns.
The study also shows that programmatic acquisition helped businesses expand their portfolio by an average of 6.1% in comparison to large M&A deals that averaged a portfolio expansion of 0.2%
Yet, despite all the evidence in favor of programmatic acquisition, more than 50% of the companies in the McKinsey study have kept their focus on larger M&A deals over the past 20 years.
This suggests a significant untapped opportunity for value creation through a programmatic acquisition strategy.
4 Key Benefits of a Programmatic M&A Strategy
Unlike traditional M&A approaches that might focus on one or two transformational deals, programmatic acquirers typically complete several deals annually, each representing between 5-15% of their market capitalization.
Smaller acquisitions, when pursued as part of a deliberate and systematic M&A program, tend to yield higher returns over the long run with comparatively lower risk.
McKinsey’s research paper explains, “Companies’ ability to successfully manage these deals can be a central factor in their ability to withstand economic shocks.”
Read Also: 10 Steps to Developing an M&A Strategy
1- Risk Mitigation
Programmatic M&A helps minimize risks on several fronts, chief among which is portfolio diversification.
By spreading investments across multiple smaller deals, companies reduce their exposure to any single transaction failure. This diversification helps mitigate both financial and operational risks, creating a more balanced growth portfolio.
Furthermore, the continuous nature of programmatic acquisition reduces the pressure to time the market perfectly for any single deal.
Businesses can maintain a steady pace of acquisitions through different market cycles, adjusting their approach based on conditions.
2- Accelerated Growth
Businesses can quickly enter new markets, acquire new technology, and expand their product portfolio within a calendar year through targeted programmatic acquisitions. This systematic approach often yields faster results than organic growth alone or a single larger acquisition.
3- Higher Value Creation
The McKinsey & Company research proved the higher shareholder returns of programmatic acquisition compared to companies that make occasional large deals or those that rarely engage in M&A.
4- Stay Ahead of Innovation
Acquiring companies with proven top talent and technological capabilities, allows your business to enhance its competitive edge.
This is particularly valuable when internal R&D might take too long or cost too much.
Read Also: 4 Ways to Calculate the Value of a Target Company
3 Limitations to Consider
Maintaining a continuous deal pipeline requires resources, including dedicated teams, tools, and processes. This can be challenging for smaller organizations.
Integration Complexity is another limitation that may face businesses during programmatic M&As. Managing multiple integrations within a calendar year can overwhelm your business’ operations.
Frequent acquisitions can create challenges in maintaining cultural cohesion across the organization. Each acquired company brings its own culture and ways of working.
Read Also: Retaining Employees During an M&A
Programmatic M&A isn’t just another corporate buzzword, it’s a proven way to drive growth and create value. The numbers speak for themselves. While others stick to outdated approaches, you have the opportunity to join the ranks of top-performing companies that use programmatic acquisition to stay ahead.
Your success will depend on commitment, clear direction, and building the right capabilities. But if you’re ready to take your growth strategy to the next level, programmatic M&A could be exactly what you’re looking for.
Developing the right M&A strategy for your business is VALUWIT’s key strength, request a consultation to explore your growth option.
