How Serial Acquirers Can Play the EPS Game “Ad Infinitum”

In the world of corporate growth, companies constantly seek strategies to expand and increase their value. Among the most effective growth strategies, acquisitions are often considered a golden ticket to achieving scale, boosting market share, and enhancing financial performance. For serial acquirers—companies that engage in frequent mergers and acquisitions—the ability to play the earnings per share (EPS) game becomes a key lever for long-term success. In this article, we will explore how serial acquirers can play the EPS game ad infinitum, maintaining a competitive edge while simultaneously improving their market performance.

Understanding the EPS Game

Earnings per share (EPS) is one of the most scrutinized financial metrics in the corporate world. It represents the portion of a company’s profit allocated to each outstanding share of common stock, and is a critical indicator of profitability. Investors closely monitor EPS as a measure of a company’s financial health and growth potential. For serial acquirers, the EPS game refers to the strategy of leveraging acquisitions to boost EPS growth, often by enhancing profitability, achieving synergies, or improving operational efficiency.

However, while acquisitions can provide short-term boosts to EPS, sustaining that growth indefinitely—ad infinitum—requires a deeper understanding of how to continuously integrate new acquisitions, realize synergies, and structure deals in a way that provides ongoing value.

1. Leveraging Operational Synergies

One of the primary drivers behind serial acquisitions is the potential for synergies. These synergies can come in many forms—cost savings, economies of scale, increased market reach, or enhanced operational efficiencies. By acquiring businesses that complement the acquirer's existing operations, serial acquirers can create a more efficient organization that generates higher margins, all of which can translate into higher EPS.

For example, acquiring a competitor in the same industry can help reduce costs through the elimination of redundancies, or by combining resources to negotiate better deals with suppliers. These cost savings can then boost profitability, which directly impacts EPS.

Additionally, integrating new technology or capabilities from acquisitions can further enhance operational efficiencies, allowing the acquiring company to increase revenues without proportionately increasing costs, a key to sustaining EPS growth.

2. Accretive Acquisitions

Accretive acquisitions refer to deals where the acquired company’s earnings contribute more to the overall EPS of the acquirer than the costs of the acquisition itself (including financing costs, goodwill amortization, and integration costs). For serial acquirers, being able to consistently identify and execute accretive acquisitions is essential to playing the EPS game ad infinitum.

Serial acquirers typically focus on acquiring smaller companies or underperforming assets that can be restructured, streamlined, or integrated into existing operations to boost profitability. Such companies often trade at lower multiples or offer opportunities for cost reductions, making them attractive targets for accretive deals.

By continually pursuing accretive acquisitions, serial acquirers can generate a cumulative effect on EPS growth. Over time, even small incremental improvements from each deal can compound to deliver substantial long-term gains in EPS.

3. The Role of Debt Financing

Debt financing is often a critical component in the strategy of serial acquirers. Using debt to finance acquisitions—especially when interest rates are low—allows companies to preserve equity ownership while increasing the scale of their operations. As a result, the acquirer can achieve greater profitability, which in turn drives higher EPS.

However, serial acquirers must be cautious not to overextend themselves in terms of debt. While debt can boost EPS in the short term by reducing the number of shares outstanding and increasing earnings, excessive leverage can create financial risk, especially if acquisition targets fail to meet performance expectations.

The key to maintaining an effective debt strategy is careful financial engineering—ensuring that the acquisition targets are likely to generate enough return on investment to service debt payments and deliver EPS growth.

4. Maintaining a Robust Acquisition Pipeline

To continue playing the EPS game ad infinitum, serial acquirers must maintain a steady pipeline of potential acquisition targets. This requires ongoing market research, relationship-building, and strategic foresight to identify companies that not only have the potential to be accretive but also align with the long-term vision of the acquirer.

A robust acquisition pipeline also provides flexibility. Even if one acquisition does not work out as planned, serial acquirers with multiple targets in their pipeline can pivot to other opportunities without losing momentum. A diversified portfolio of acquisitions, with different sources of synergies, can help mitigate risk and create more opportunities for EPS growth.

5. Managing Integration Effectively

The integration process is often where the true value of an acquisition is either realized or lost. For serial acquirers to maintain success, they need to master the art of integration—combining two organizations seamlessly and realizing synergies quickly. Inefficient integration can derail the expected boost to EPS and damage the financial performance of the acquirer.

Key to successful integration is clear communication, strong leadership, and a well-defined post-acquisition strategy that focuses on extracting value from the deal. By swiftly consolidating operations, aligning cultures, and optimizing the combined entity, serial acquirers can ensure that their acquisitions lead to tangible improvements in profitability, ultimately boosting EPS.

6. Creating a Sustainable Competitive Advantage

Playing the EPS game ad infinitum requires more than just focusing on short-term earnings. Serial acquirers need to create a sustainable competitive advantage by building a strong and resilient business model that continues to generate profitable growth through acquisitions.

This might include creating unique intellectual property, enhancing customer loyalty, or investing in new technologies that can differentiate the business from competitors. By ensuring that the acquired companies continue to innovate and grow, serial acquirers can protect their market position and ensure that future acquisitions continue to contribute positively to EPS.

Conclusion

Serial acquirers can play the EPS game ad infinitum by strategically using acquisitions to enhance operational efficiency, generate accretive growth, and maintain a robust acquisition pipeline. However, consistent success requires effective management of synergies, careful debt financing, strong integration practices, and a focus on sustainable competitive advantages. By mastering these elements, serial acquirers can continue to drive EPS growth and create long-term value for shareholders, ensuring that the game is one they can keep playing for years to come.

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