The McKensey Quarterly
the McKinsey Quarterly Chart Focus Newsletter July 2008

Is your company the natural owner of its business?

Economic downturns can be an ideal time for a well-positioned company to hunt for acquisitions, but the risk in picking up bargains is that it may add inappropriate businesses to its portfolio. Even the standard “rebalancing” approach of normal times—investing free cash flows in seemingly more attractive businesses, preferably with synergies to existing ones—often creates little value. McKinsey research suggests that the right portfolio strategy, in essence, is to be the natural owner of your business, in any of several ways: operational synergies, distinctive skills, or specific strengths, such as superior access to capital and talent in emerging markets. The most important thing is the difference an owner can make to a business, not its absolute level of returns.

The exhibit below shows how one company judged it’s opportunities for M&A and diverstitures, given the predicted returns of current and potential investments.

To find out more about how companies can balance their investment options against their capital that’s available to finance them, read “The new dynamics of managing the corporate portfolio” (April 2007).

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Did you miss last month’s Chart Focus?

Companies aiming for growth should take a granular approach to evaluating their competitive options.

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