Some companies emerge from a recession stronger and more highly valued than they were before the economy soured. By making strategic choices that sometimes defy conventional wisdom, they increase their stock market valuations relative to those of their former peers and thus gain more power to shape their industries.

To see how recessions can be used to advantage, we studied nearly 1,000 mainly industrial US companies over an 18-year period (1982–99) that included the US recession of 1990 to 1991.¹ We identified companies that either remained industry leaders (those that stayed in the top quartile of performance in their industries) or became successful challengers (those that moved up into the top quartile).² We then investigated the attributes of successful companies, both during the recession and in healthier economic times.

Successful challengers, we found, maintained a greater appetite for acquisitions during the recession than did their less successful former peers. In periods of growth, these challengers were M&A laggards—they made 63 percent fewer deals³ than their former peers did. But during the recession, while competitors brought their deal-making activity nearly to a halt, successful challengers dropped relatively few of their transaction plans, erasing the gap...