PAPER - M&A & long-term growth
'What matters most to us is that the cash generation capacity
of the combined entity improves over time'
What generates value?
It is a very current issue for listed companies and investors: what place does M&A hold in the quality growth equation? The heart of this question, argues Wolfgang Fickus of Comgest, lies in the capital allocation decisions made by management: 'In order to maintain durable growth in earnings and dividends, we believe that CEOs need to primarily reinvest cash flows into initiatives that will consolidate or enhance the pricing power and competitive advantage of their businesses, thus resulting in long-term growth.'
Cash is king, even in M&A
'What matters most to us is that the cash generation capacity of a combined entity improves over time. In many cases, this is evidence that synergies are in play. Cash either sits on a balance sheet or can be reinvested in the business. In practical terms, this paper analyses the impact of M&A on CFROI (cash flow return on investment)3, as it best captures the changes in long-term value generation that we are most interested in.'