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Many companies with stockpiles of cash are eyeing potential acquisition targets. Should they look for stand-alone companies that may improve top-line revenue growth and market share? Or should they continue to grow their bottom line by focusing on targets that can be integrated into the business?
Over the past few years, many companies methodically improved their bottom line by trimming operating costs, increasing profit margins and building up a war chest. Now as the economic tempo accelerates, investors and analysts want to see that cash put to good use. Should you spend it by acquiring stand-alone companies that will help you quickly grow top-line revenue and market share? Or should you look for companies that can be integrated into your business, eliminating redundancies and further strengthening the bottom line?
Here’s the debate:
Focus on top-line growth.Market share is king in today’s market place. Now is the time to buy-up competitors and grab their share of the customer’s wallet before someone else does. It’s also a fast way to add capacity to keep current customers happy. You can worry about growing profits at a later stage.Keep both eyes on the bottom line.
Profit rules – regardless of the marketplace. Look for targets that can be quickly assimilated into your organization to reduce costs and improve profits. Winners stay lean and efficient -- through good times and bad.Market share powers the supply chain.
A global scramble is on for raw materials, parts and semi-finished products. Prolific economies-of-scale mean bigger orders – moving you to the front of the supplier’s line.Planning powers the supply chain.
Who needs the luxury of being able to place last-minute orders? Smart business planning provides enough lead time to shop multiple suppliers and negotiate longer-term contracts at a better price.People want to work for the big dog.
The allure of a fast-growing company attracts top talent. They want to work for companies that provide opportunities to pursue different careers within the same company. It’s an unbeatable talent retention strategy.People want an employer they can depend on.
A more profitable and efficient company offers better long-term rewards and a stable work environment. Who wants to risk being laid off – again?Time to think big.
Size gives you the freedom to think big and be innovative. That’s what gets investors’ attention. Small players don’t make sound global partners.Time to grow up.
Investors have learned their lesson watching high-flying companies crash and burn. A better strategy is to be clear about who you are and what you do – and execute better than anyone else.
Asish Ramchandran
Principal, M&A Consultative Services, Deloitte Consulting LLP
It’s a good time for many companies to pursue top-line growth – as long as they know what they’re getting into.
This year, companies that judiciously cleaned up their bottom lines and stockpiled cash during the financial crisis are eagerly eyeing less diligent companies that appear undervalued. Some acquirers see an opportunity to expand their territory while satisfying investor and analyst expectations. Others hope to quickly ramp-up operations to fulfill their customers’ pent-up demands and keep competitors at bay.
As a result, we’re seeing more companies interested in pursuing inorganic strategies focused on top-line growth. It’s a strategy that can work well – with the right due diligence. Companies that are currently struggling may have acquired targets that did not fit their overall business strategy. As a result, the acquired companies did not strengthen the parent’s core business or improve its overall market share. Meanwhile, the combined company’s operating costs increased, profits declined and analysts are questioning the long-term vision for the franchise. Smart acquirers must be careful not to repeat their mistakes.
When pursuing any M&A deal, it’s important to understand your core focus and look for targets that will complement your global business strategy. A deal that looks like a good value can still be a poor investment if it doesn’t fit the company’s strategic vision. In addition to the typical financial and IT due diligence, also scrutinize the target’s operations and market presence. In-depth due diligence may increase your upfront effort by a week or two, but can provide the information you need to make an effective go-or-no-go decision.
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Chart Source: FXCM’s Marketscope, FXCM Demo Account Since the height of the global financial crisis in 2008, China has intensified efforts to promote the RMB as an international currency. Yet more important questions to potential investors are when and how the process will take place. In order to predict future, we first need to review history first in order to determine the critical timing for changes in the Chinese Yuan. The Renminbi was first issued on December 1, 1948 and soon pegged to the US dollar with USDCNY at approximately2.46Yuan. At that time, China had little international trade so the setup of exchange system remained in in relative infancy. As imports and exports continued to increase sharply, China adopted a double currency systemstarting in 1981: regardless of the official exchange rate, a US Dollar at 2.80 Yuan was used for trade settlement. From 1994, the Chinese government pegged the RMB to the greenback within a narrow range from 8.27 Yuan to 8.28 Yuan. The fixed exchange rate guaranteed a relatively stable financial market and helped protect against external shocks as China’s economy expanded at a fast pace. On July 21, 2005, the People’s Bank of China announced that it would lift the peg to the US dollar and increased flexibility of RMB exchange rate. Following the release, RMB appreciated by 2 percent to 8.11 Yuan. As the use of China’s currency expanded from trade settlement to offshore financial markets and direct investment, RMB reform and internationalization has accelerated with a market-oriented focus. Overall, the development of China’s economy is the main driver to RMB globalization. Learn more about the Offshore Renminbi Exchange rate via FXCM Asia Limited What is a Currency War? Who is engaging in one right now? How is it impacting your trading? Take our free course and find out! Written by Renee Mu, DailyFX Research Team 
Article Summary: China is the world’s second-largest economy and its economic growth far outpaces major industrialized counterparts. Yet its domestic currency, the Chinese Yuan, is not a truly international currency. Here is a guide on using the USDCNH to trade the uptrend in the Chinese Yuan. 