Characteristics of Better Acquirers  609 Regardless of whether the expected EPS was greater, smaller, or the same two years after the deal, the market’s reaction was similar (within the bounds of statistical significance) at one month after the announcement and one year after the announcement. Characteristics of Better Acquirers This chapter ends with some observations about the characteristics of compa- nies that are better acquirers. Companies are more successful at M&A when they apply the same focus, consistency, and professionalism to it as they do to other critical disciplines.28 This requires building four often-neglected institu- tional capabilities: engaging in M&A thematically, managing their reputation as an acquirer, confirming their strategic vision, and managing performance improvement targets across the M&A life cycle. Engaging in M&A Thematically Successful companies develop a pipeline of potential acquisitions around two or three explicit M&A themes that support the corporate strategy. These themes are effectively business plans that utilize both M&A and organic in- vestments to meet a specific objective while explicitly considering an orga- nization’s capabilities and its characteristics as the best owner of a business. Priority themes are those where the company needs M&A to deliver its strat- egy and to have the ability to add value to targets. They are also highly de- tailed, and their effect is measurable in market share, customer segment, or product development goals. Consider, for example, a global retail company’s M&A theme: to grow through entry into two emerging markets by acquiring only local compa- nies that are unprofitable yet in the top three of their market. That’s a level of specificity few companies approach. To get there, managers started with the company’s strategic goal: to become the third-largest player in its sector within five years, something it could achieve only by aggressively enter- ing emerging markets. A less disciplined company might have accepted the strategic goal as its M&A objective and moved on to a broad scan for targets. But managers at the retail company refined their M&A goals further. They concluded that trying to enter too many markets at once was impractical, due to constraints on management time and the complexities of entering new geographies, so they limited their search to the two most promising regions. They also knew their lean operations would offer cost performance improvements in companies with bloated operations—especially given the 28 Adapted from C. Ferrer, R. Uhlaner, and A. West, “M&A as a Competitive Advantage,” McKinsey on Finance, no. 47 (Summer 2013): 2–5. 610  Mergers and Acquisitions importance of economies of scale in the industry—and that local branding and catering to local preferences were critical. With their M&A theme de- fined so precisely, managers were able to narrow the list of potential candi- dates to a handful of companies. Managing Reputation as an Acquirer Few companies consider how they are perceived by targets or how their value proposition as an acquirer compares with that of their competitors. Many are too slow and reactive at identifying potential acquisition targets, too timid in courting and building relationships with them, or too tactical when initiating conversations. They may have such broad goals that they can’t proactively approach a list of potential targets. In our observation, companies that invest in their reputation as acquir- ers are perceived as bold, focused on collaboration, and able to provide real mentorship and distinctive capabilities for the target. Even some of the larg- est and most complex organizations can be perceived as attractive buyers by small and nimble targets, largely due to the way they present themselves and manage M&A. The best among them tend to lead with deep industry in- sight and a business case that is practical and focused on winning in a mar- ketplace, rather than via synergies or deal value. They let target-company managers see how they can be successful in the new organization, typically by enabling the aggressive growth vision of the smaller company. They also have scalable functions and a predictable, transparent M&A process that tar- gets can easily navigate. As a result, they can use their position in the market to succeed in dimensions that go beyond price—and are often approached by targets that aren’t even yet for sale. This is a real competitive advantage, as the best assets migrate to the companies they perceive will add value, and this decreases search time, complexity of integration, and the chances of a bidding war. At one high-tech company, for example, these concepts came together around the theme of enabling innovation. The company’s investment in its reputation as an acquirer started with an external marketing campaign but quickly made its way deep into the M&A process. In discussions at confer- ences and in engineering communities, managers used testimonials from acquired employees to underscore their track record at buying companies and providing them with the expertise and resources they need to acceler- ate their product pipelines. They developed useful personal relationships with target-company executives by discussing ways to work together even beyond the context of a deal (or instead of a deal). And when it came time to present integration plans and future investment models to targets, man- agers made sure the proposals were consistent with the acquiring com- pany’s reputation.