M&A Driving the Fortune of the Fortune 500
The latest report from Deloitte shows that mergers and acquisitions are playing a key role in sustaining a company’s position on the Fortune 500 list. The study hypothesises that Fortune 500 dealmaking activity has come about as companies on the list increasingly compare the risk and return of a perspective M&A deal against the odds of delivering value via other strategies (e.g. investing in-house in innovation to develop a new product or deploying resources to build “greenfield” capabilities in a new market) and, activity levels suggest that in many cases, pursuing M&A has shown to be a better bet.
Substantiating this theory, the study indicates that M&A-driven growth generates higher and more definitive value for large-cap and medium-cap C&IP organisations than organic growth does.
Sustaining the Fortune 500 Breakthrough
To take three examples from the list, companies like Amazon, Walmart and FedEx seek to remain ahead of the innovation curve and sustain their positions – at number one in the case of Walmart, 29 Amazon and 65 FedEx – within the list through acquisition. Demonstrating this, in the last 12 months FedEx acquired rival TNT, Walmart took a step towards ramping up its digital profile through the acquisition of mobile app Stylr, and Amazon completed its $0.5bn acquisition of mobile video service Elemental Technologies.
In fact, over the last 12 months this dealmaking activity has enabled America’s Fortune 500 companies to boast revenue growth worthy of Silicon Valley start-ups. In 2014, mergers and acquisitions activity spiked 45% to hit $3.5 trillion, and this record is set to be beaten by the end of this year, facilitated by low borrowing costs and increased levels of reported available cash within businesses.
Forecasters predict that thanks to an ambition to innovate, similar dealmaking figures can be expected in 2015 and extending into 2016 – not only for Fortune 500 companies, but across the board. This includes a continued increase in the levels of international activity, particularly between the US and Europe, thanks to destinations with relatively low corporate tax rates, a stable economic backdrop and a rising number of attractive takeover opportunities, so watch this space.
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 Results were not conclusive for small-cap companies due to small sample size and data volatility.