A recent round table of corporate dealmakers at a conference sponsored by The Deal offered some interesting insights into the strategy mindset of some of the largest corporations in America. All of the panelists expressed a “commitment to external growth.”
Two observations stood out to me. First, Sean Murphy of Abbott Labs said they are still “looking for strategically sensible deals”, implying that even in the face of current economic uncertainty, strategic deals are still being done. Duncan O’Brien of GE noted that there were “some deals (they) couldn’t pass up because of valuations in this economy.” We here at Capstone have long advocated that companies should not stop looking for ways to grow their companies externally – they just need to be smarter about how they do it.
Second, as an example to reinforce this last point, in referring to the use of joint ventures as an external growth vehicle, O’Brien stated that they have learned in a JV “to do enormous documentation in the beginning to circumvent problems” and to put in “the right leadership, putting emphasis on HR”. In our opinion due diligence (enormous documentation) and integration (emphasis on HR after the deal is closed) are two sides of the same coin, and continue to be especially important in a strategic investment, where the return on investment can be as subjective as objective.