As corporate dealmakers so often find out the hard way, the market often rewards growth far more than it rewards anything else.
But as Brian Buchert, vice president of corporate strategy and M&A at consumer products company Church & Dwight Co. (CHD) , knows all too well, with great growth comes great responsibility. You can only bulk up so much before things become challenging.
"We're a $13 billion to $14 billion market cap company [Church & Dwight's market cap on Thursday afternoon was $11.8 billion] with $4 billion in sales, and as we get bigger, we have to do bigger, more impactful deals," Buchert said Thursday, Nov. 30, at The Deal Economy Conference in New York. "When you do that, you take on more risk, and you run into a level of competition you may have not before."
Buchert explained that for a time Church & Dwight hoped to become a dominant global condom provider, but often when it attempted to purchase an international condom brand, a larger consumer conglomerate such as Reckitt Benckiser Group plc would come in at the last minute and offer 20% more and run away with the target.
So Church & Dwight, best known for Arm & Hammer baking soda, OxiClean detergent and Trojan condoms, resolved to be a North American condom leader, and nothing more.
"We have to narrow our criteria," Buchert said. "We need to limit our focus to opportunities that have a good chance of success and fit all the criteria. We can't run around chasing everything."
On the other side of same coin, being prepared for the bigger deals is paramount as well, cautioned Nneka Rimmer, senior vice president of strategy and global enablement at McCormick & Co. (MKC) , because the speed at which corporate deals pan out today is often faster than ever before.
McCormick in July agreed to buy the food division of the U.K.'s Reckitt Benckiser for $4.2 billion. The deal was the largest in McCormick's history, dwarfing the Baltimore-based company's $605 million acquisition of the Lawry's and Adolph's branded spices, seasonings and marinades business from Unilever plc (UL) in 2007 and its 2016 attempt to buy Premier Foods plc for £537.3 million ($719.8 million).
"We've had relatively larger, transformational deals actually move much faster," Rimmer said. "We've been in the flavors space for a long time, but you cannot underestimate the importance of being prepared for something that could be transformational."
When negotiating larger deals, however, there are far more factors to consider. For Brian Mellone, senior vice president and director of corporate development and strategy for First Horizon National Corp. (FHN) , a Memphis bank holding company, one factor that stands out is the regulatory environment.
Consider First Horizon's pending $2.2 billion cash-and-stock deal for North Carolina's Capital Bank Financial Corp. (CBF) .
"Our most recent transaction is a third of our size," Mellone said of the Capital Bank deal. "And I think a deal function of that is the regulatory environment has been improving in the bank space a little bit. We were prepared for that happening at some point, and we were opportunistic because of that. Then we waited for the right cultural fit."
But corporates face trouble with smaller deals as well, according to Tatyana Mosenkis, United Technologies Corp.'s (UTX) associate director of business development.
"One challenge for us as an industrial manufacturing company, we're more accustomed to doing predictable deals," Mosenkis said.
For example, Mosenkis explained that when United Technologies attempts to invest in clean technology companies, it finds they, even if around for five or 10 years, are often still not producing a profit.
"It's a challenge for us culturally to get used to this," she said.
To be sure, one thing that is universal across all deals -- culture is key.
"Culture is a huge wild card you have to assess," Mellone explained. "Growth just to grow is not sustainable in the long term."
Couldn't join the crowd at the Essex House in midtown Manhattan? Tune in to a webcast of The Deal Economy Conference here, or stay tuned to The Deal and sister publication TheStreet.com, which will be posting stories all day from the event.