It’s gut-check time for CEOs. As the credit crunch threatens to become a global downturn, corporate leaders have a choice: pull in their horns and ride out the storm or look for opportunities to pick up bargain-basement assets that will help them grow and create future value for shareholders. If past is prologue, more will follow the first course—which is a mistake.
Our research indicates that although most executives know and pay lip service to the maxim “Invest in a downturn,” few act on it. For our recent book, The Granularity of Growth,1 we created a database of roughly 200 global companies and decomposed the most important sources of growth (market momentum, mergers, and share gains), not just for each company, but also for finer-grained market segments. Then we identified segments that had experienced significant upturns or downturns and looked at the strategies companies adopted during those periods.2 Finally, we computed each company’s total returns to shareholders so we could compare performance across growth sources, segments, and strategies.
Two sets of results stuck out. First, of the potential strategic moves companies can take to grow in a downturn—divest, acquire, invest to gain share—an effective acquisition strategy...