Boosting Organic Growth with Programmatic M&A and Cross-Selling

With just a little bit of cross-selling, increasing the number of strategic acquisitions per year, even smaller ones, can significantly increase the rate of organic growth and revenue.

Boosting Organic Growth with Programmatic M&A and Cross-Selling

Programmatic M&A is a carefully choreographed series of deals around a specific business case as opposed to episodic big bang transactions.

An empirical study by McKinsey, which analyzes more than 20 years of data, demonstrates that programmatic M&A is more likely than other M&A strategies to create value.

To understand the reasons behind this phenomenon, I built a system dynamics model of an M&A process.

The key parameters controlling the model are the number of acquisitions per year and the size of the acquisition. The latter is expressed as the ratio of the revenue of the acquirer to the revenue of the acquiree.

In terms of cost synergies, the benefits of acquiring four smaller companies per year at 5% of revenue versus one company at 20% are about the same.

The situation changes dramatically once we add revenue synergies to the mix.

With just 5% of cross-selling, the programmatic M&A model delivers an annual organic growth of 8% and has a nearly 50% advantage in annual revenue at year five.

I shared the model here. Feel free to experiment. Reach out if you'd like to get a copy of the original Vensim file.

The slight bump in the growth rate curve is due to the post-merger integration time, assumed to be 24 months on average.

In the model, I calculated the bulk of the cross-selling pipeline as:

AcquiredACV * AcqusitionsPerYear * Customers * xSellingRate

where

  • AcquiredACV – the average annual contract value of the acquiree
  • AcquisitionsPerYear – the number of acquisitions per year
  • Customers – the number of fully integrated customer accounts
  • xSellingRate – the fraction of  customers that buy acquired products

Not surprisingly, with just a little bit of cross-selling, increasing the number of strategic acquisitions per year, even smaller ones, can significantly increase the rate of organic growth and revenue.

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