Pricewaterhousecoopers' Trendsetter Barometer Interviewed CEOs of 339
Privately-Held Product and Service Companies Identified in the Media
as the Fastest Growing U.S. Businesses Over the Last Five Years
Surveyed Companies Range From Approximately $5 -- 150 Million in
Revenue/Sales
NEW YORK, May 16, 2006 (PRIMEZONE) -- Fast-growth CEOs see alliances, acquisitions and licensing as increasingly critical to their company's success over the next three years -- with M&A growing most in importance. But although acquisitions and the other growth strategies appear destined for more activity, they clearly aren't in the cards for everyone.
More see growth opportunities with others
Leaders of the nation's fastest-growing private companies see alliances, acquisitions and licensing as increasingly critical to achieving their business objectives over the next three years -- with acquisitions showing greatest momentum:
Important for Helping Company Reach Its 3 Years % Business Objectives Today from Now Change Alliances, including joint ventures and contractual partnerships 57% 66% +16% Acquisitions and mergers 37% 59% +59% Licensing or co-marketing agreements 31% 36% +16%
"We continue to observe an attitude shift about options for growth in today's market," said Fentress Seagroves, transaction services leader in PricewaterhouseCoopers' Private Company Services practice. "More CEOs expect their company to use non-organic expansion strategies, particularly acquisitions, in the near future."
A successful track record
Over the past three years, 48 percent of "Trendsetter" companies were involved in an average of 4.9 alliances or joint ventures; 27 percent participated in an average of 2.4 acquisitions or mergers; and 25 percent were involved in an average of 5.7 licensing or co-marketing agreements.
Overall, 87 percent reported that their most-recent acquisition or merger achieved some success in meeting its objectives -- including a solid majority (58 percent) who found it "highly successful." Only seven percent deemed it "not successful," and six percent did not answer.
Similarly, 90 percent said their most-recent alliance met with some success -- including 47 percent describing it as "highly successful." Only six percent were termed "not successful." Viewed separately, considerably fewer involved in licensing or co-marketing agreements described them as "highly successful" (36 percent):
Most-Recent Experience
Some Highly Not Not
Success Successful Successful Reported
Acquisitions
or Mergers 87% 58% 7% 6%
-----
Alliances or
Joint Ventures 90% 47% 6% 7%
-----
Licensing or
Co-marketing
Agreements 89% 36% 5% 7%
"When the leaders of these companies weigh the merits of a 'make or buy' growth strategy, increasingly they consider partnering or acquisition over gestation," said Seagroves. "Many who have tried non-organic growth strategies are reporting some degree of success, and this may be attributed to increased attention to the broader transaction process, including due diligence and integration planning, going in. This way, both risks are better-understood, transition can be smoother and more effective, and a positive impact on the business may be more immediate."
Acquisitions and mergers shine, but are not for everyone
The 27 percent of CEOs involved in acquisitions or mergers over the past three years attribute 20.9 percent of their total current business revenues to them. Over the next 12 months, this contribution is expected to increase, on average, to 25.0 percent of revenues, a gain of twenty percent.
However, a growing number, 36 percent, say they have serious plans to engage in business acquisitions or mergers over the next three years -- bringing the net total to 45 percent that have recently completed or are planning one. By far, the number-one reason for their next transaction is to extend their customer base. Other reasons include entering new markets or businesses, consolidation/ economies of scale, and geographic expansion:
Importance
Reasons for Next Acquisition/
Merger Any Very Somewhat
Extend customer base 90% 63% 27%
-----
New markets or business entry 77% 37% 40%
Consolidation/ economies
of scale 74% 37% 37%
Geographic expansion 62% 34% 28%
New/ more-robust distribution
channels 54% 20% 34%
Diversify/ hedge against
volatile markets 46% 16% 30%
Get superior/ more-appropriate
management 45% 12% 33%
Alternative to internal R&D 36% 14% 22%
Gain strategic assets abroad 23% 7% 16%
But in contrast, nearly half -- 49 percent of "Trendsetter" CEOs -- say their company will not be seeking an acquisition or merger over the next three years, mainly because they are satisfied with current internal growth (cited by 54 percent of this group). Other reasons include concern about change or "biting off more than they can chew" (28 percent); and lack of attractive candidates (24 percent).
"While there may be many solid reasons for non-organic growth, nearly half the surveyed CEOs took this business option off the table for the next three years, perhaps for a lack of comfort with acquisition as a strategic tool for expansion," noted Seagroves. "Some may be concerned that an acquisition could be too costly in today's price-competitive market, or that the process may be unwieldy, or they may be uncertain about how to effectively-integrate the two entities to achieve the synergies they seek."
More are involved in alliances than M&A, but fewer have future plans
Looking ahead over the next three years, 45 percent have serious plans for involvement in alliances or joint ventures -- slightly fewer than the 48 percent involved in the past three.
The two leading reasons for their next important corporate alliance or joint venture are the same as for those planning M&A involvement: extending their customer base and entering new markets or businesses -- followed by developing new/ more-robust distribution channels, and geographic expansion.
Importance
Reasons for Next Alliance
or Joint Venture Any Very Somewhat
Extend customer base 88% 61% 27%
-----
New markets or business
entry 83% 53% 30%
-----
New/ more-robust
distribution channels 66% 38% 28%
Geographic expansion 62% 35% 27%
Consolidating/ economies
of scale 57% 23% 34%
Bridge to an acquisition 53% 14% 39%
Risk sharing 51% 22% 29%
Alternative to internal R&D 43% 11% 32%
Gain strategic assets abroad 23% 8% 15%
"It is noteworthy that the two leading reasons for making an acquisition are the same as for engaging in a strategic alliance," said Seagroves. "Many recognize that alliances and joint ventures may be well-suited to achieving strategic objectives in certain circumstances. Like acquisitions, alliances and joint ventures can be attractive growth options, given the synergies and opportunities they can produce. In the end, each option is an extension of overall corporate business strategy -- a tactic used for achieving profitable growth. The CEOs we spoke with have clear growth goals in mind, and appear ready to use more than one approach for achieving them."
PricewaterhouseCoopers' Trendsetter Barometer is developed and compiled with assistance from the opinion and economic research firm of BSI Global Research, Inc.
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If you have a question about this Trendsetter Barometer survey, please contact Pete Collins, survey director and publisher, at 646-471-4496 or e-mail to: pete.collins@us.pwc.com
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