Studies in the for-profit sector indicate that companies that buy undervalued assets during an economic downturn significantly enhance shareholder value in the form of better returns. However, the studies also show that many companies behave in a counterproductive way, freezing their portfolios or focusing solely on cost-cutting initiatives rather than acquisition strategies (Baghai, M., et al., “M&A Strategies in a Down Market,” The McKinsey Quarterly, September 2008). This behavior may be due to greater conservatism and the avoidance of perceived risk by organizations capable of assuming an appropriate level of risk in order to be “market consolidators.”
In the corporate world, the software giant Oracle is providing a vivid example of how strong organizations can acquire relative “bargains” in a recessionary period. In the past year, Oracle has completed 10 acquisitions, a number of which were for product-rich but cash-poor “niche” companies whose valuations had dropped significantly (“Worthen, B., “Cash-Rich Oracle Scoops Up Bargains in Recession Spree, Wall Street Journal, Feb. 17, 2009.)