The Australian - The Deal - - Extra -

the big end of town is hop­ing that a Coali­tion govern­ment will be far more ac­cept­ing of the role busi­ness plays in cre­at­ing wealth – a con­cept it be­lieves the Gil­lard govern­ment has failed to grasp. How­ever, the real is­sue for busi­ness is to fo­cus on the value be­ing de­liv­ered to share­hold­ers, rather than any im­ped­i­ments be­ing laid at its feet.

And there are many peo­ple ready to help, such as Bos­ton Con­sult­ing Group global chair­man Hans-Paul Burkner, who was in Aus­tralia re­cently spruik­ing the ben­e­fits of growth. “Ev­ery so­ci­ety needs growth and so does ev­ery com­pany,” he said, and went on to urge more global ex­pan­sion by Aus­tralian com­pa­nies.

Now, there’s no ar­gu­ment about the de­sir­abil­ity of cre­at­ing more share­holder value. But it’s al­ways an is­sue of how best to do it – ex­pand to new mar­kets, pur­sue a merger or ac­qui­si­tion, or cut costs and bide your time.

Of course, Burkner is quick to ad­mit that such ad­vice smacks of the old line about the con­sul­tant who calls at a farm and of­fers to tell a farmer how to count his sheep. The farmer re­sponds: “Great, you want me to pay you so you can tell me some­thing I don’t need to know.”

Still, when gen­uine in­ter­na­tional cor­po­rate lead­ers such as Burkner spread the word, it makes sense to lis­ten, es­pe­cially since BCG’s rev­enues tripled dur­ing his nine years as global chief ex­ec­u­tive. In 2010, he opened a Perth of­fice with three peo­ple and by the end of 2012 the staff num­ber was 30.

Suf­fice it to say that busi­ness and govern­ment are on the same page when it comes to chas­ing growth, but opin­ions dif­fer on ex­e­cu­tion.

Just ask ANZ chief Mike Smith, who did what few oth­ers in Aus­tralian bank­ing have done. He con­vinced his share reg­is­ter of the need to ex­pand into Asia and sold the re­gional su­per story suc­cess­fully – un­til re­cently.

But when you’re part of the Aus­tralian bank­ing oli­gop­oly high-teen re­turns are ex­pected and that’s con­sid­er­ably bet­ter than the 8-11 per cent re­turns achieved to date in Asia. ANZ’s tra­di­tional busi­ness bank­ing base means it al­ways trades at a price-earn­ings­mul­ti­ple dis­count of about 4 per cent com­pared with its big-bank peers. How­ever, this has blown out to 9 per cent as the mar­ket fears ANZ has gone ex-growth.

The calls for global ex­pan­sion and takeovers are sup­ported with wild en­thu­si­asm by in­vest­ment bankers and rightly so. While board con­ser­vatism amid po­lit­i­cal and eco­nomic un­cer­tainty has kept deal ac­tiv­ity to a min­i­mum, the fact is that well-ex­e­cuted, counter-cycli­cal big deals can de­liver real value.

A study re­ported in the Har­vard Busi­ness Re­view ex­am­ined 215 global deals worth more than $US5 bil­lion done be­tween 2000 and 2010. The au­thors found that on aver­age the buyer’s stock out­per­formed the mar­ket by about 6 per cent over two years. How­ever, some buy­ers recorded out­per­for­mance of more than 25 per cent in the longer term.

On a dif­fer­ent track, Mac­quarie Group strate­gist Tanya Bran­white says that growth through cost con­trol is what’s needed to­day to get busi­nesses back into shape be­fore they look for the next leg-up. She ex­pects in­dus­trial com­pany earn­ings per share to grow by 6.6 per cent this fi­nan­cial year and 10.9 per cent next year, pri­mar­ily through cost-cut­ting. This mar­gin ex­pan­sion will be the ma­jor pos­i­tive driver on the lo­cal bourse this year af­ter four con­sec­u­tive down years.

Even so, chief ex­ec­u­tives must keep com­pa­nies grow­ing to main­tain prof­itabil­ity and keep staff mo­ti­vated. And that, ac­cord­ing to Burkner, re­quires more pos­i­tive think­ing. The start­ing point is a re­al­i­sa­tion that Aus­tralia is at the cen­tre of the fastest-grow­ing re­gion in the world. As Burkner says: “You have to stop feel­ing that you are on the fringe of the world – you are at the cen­tre.”

Cor­po­rate boards need to adopt a long-term per­spec­tive and be ready to lay some big bets. Burkner’s four keys are to fo­cus on core com­pe­tence, ex­pand ge­o­graph­i­cally, pre­serve mar­gin and ac­quire to grow. Easy to say, not so easy to ex­e­cute.

In­vestor in­er­tia is a key ob­sta­cle in Aus­tralia, where the mere men­tion of an off­shore ac­qui­si­tion sends peo­ple run­ning. Fund man­agers ar­gue they can in­vest off­shore if they want, but they in­vest in Aus­tralian com­pa­nies be­cause they like the re­turns, the con­cen­trated in­dus­try sec­tors, franked div­i­dends and the like. This is an area where in­vestor re­la­tions needs to do its bit.

It’s a never-end­ing bat­tle that re­quires con­sis­tently su­perb ex­e­cu­tion. But that’s ex­actly why chief ex­ec­u­tives get paid the big bucks, isn’t it?

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