Subscribe to receive updates when new Debates are released:
E-mail | 
RSS (What is RSS?) | Vote on the Debates | Join the Conversation
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.
Library: Deloitte Debates
Services: Consulting
Overview: Merger & Acquisitions and Merger & Acquisitions Services
Chart - Created Using FXCM Marketscope 2.0 Although the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) is trading 0.07 percent lower from the open, we may see the greenback regain its footing during the North American trade as the economic docket is expected to highlight a rebound in demands for U.S. Durable Goods along with higher home prices. However, as a downward trending channel appears to be taking shape, we may see further correction in the dollar, which could pave the way for a break below the 10,400 region. Until the bearish trend is broke, we will keep a close eye on former trendline resistance, which could offer near-term support, but the reserve currency may regain its footing over the next 24-hours of trading should the fundamental developments coming out of the world’s largest economy highlight a more broad-based recovery. 
Although U.S. consumer confidence is expected to fall back from a three-month high, demands for large-ticket items are projected to increase 3.95 in February, while the S&P/Case-Shiller Home Price index is anticipated to show an annualized gain of 7.8 percent in January, which would mark the fastest pace of growth since June 2006. The expected 3.9 percent decline in New Home Sales may have limited impact after marking the biggest advance since 1993 during January, while the Richmond Fed Manufacturing index is projected to hold steady at 6 in March. Nevertheless, New York Fed President William Dudley argued monetary policy should remain ‘very accommodative’ as he sees a ‘fiscal drag’ of 1.75 percentage points in 2013, and warned that the greatest risk to the economy comes from ‘fiscal restraint’ as the government struggles to get its house in order. At the same time, Fed Chairman Ben Bernanke said the easing cycle enacted by the major central banks has held the world economy as they face a slow recovery, but the FOMC may adopt a more neutral to hawkish tone in the coming months should the data continue to highlight a more broad-based recovery. We will be watching the relative strength index, with support coming in around the 41 figure, as the technical outlook points to future declines, but the dollar may continue to consolidate above the 10,400 figure amid the shift in the policy outlook. 
Two of the four components advanced against the greenback, led by a 0.19 percent rally in the Euro, but the single currency may face additional headwinds in the days ahead amid the threat of a bank run in Cyprus. As the financial turmoil in the periphery country dampens the appeal of other popular offshore banking centers, the flight to safety may further diminish demands for the single currency, and the EURUSD may continue to work its way back towards the 23.6 percent Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 as the precedence set by the Cyprus bailout has broader implications for the region. --- Written by David Song, Currency Analyst To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong. To be added to David's e-mail distribution list, please follow this link. New to FX? Watch this Video Join us to discuss the outlook for the major currencies on the DailyFXForums 