Acquisition Strategy: Acquisitions have been a major factor fueling GE’s double-digit growth during the Welch years. Since 1985, GE has been a voracious acquirer of new businesses, and the rate has only increased in recent years. For example, in the final four years of his tenure, GE made more than 100 acquisitions per year. All told, GE made more than 1700 acquisitions under Welch. In 1999 alone GE made 134 acquisitions valued at $17 billion. In October 2000, Jack Welch attempted the largest acquisition in GE history: Honeywell. Although the $45 billion deal was ultimately blocked by European regulators, the attempted bid demonstrates GE’s willingness to acquire aggressively.

 

Welch’s willingness to discard “the old way” created the foundation for his many revolutions. This was especially true in his approach to acquisitions. Before he took over, acquisitions were simply not a part of the GE culture. Throughout his tenure as chief executive, Welch showed that he was not afraid to defy conventional GE wisdom. He made what he called a “quantum leap” in December 1985 when he announced the acquisition of RCA (which brought NBC to GE).Welch stunned GE watchers again in October 2000 when he launched his $45 billion acquisition of Honeywell. Although ultimately unsuccessful, that bold move demonstrated many of Welch’s key tenets of business, including “speed” and “pounce every day.”

 

In his last year as CEO, Welch said that the decision to acquire is not about “some silly calculation” that computes discounted rates of return. To the GE chairman, acquisition decisions are far more intuitive. Acquiring a business is “a nose, a stomach, a feel.” When asked to identify the key criteria that he uses to evaluate prospective acquisitions, the GE chief answered with the following four simple responses:

1. Is the company accretive to earnings?

2. Can we manage it?

3. Does the culture fit?

4. Can we grow it?

Cultural fit was a key concern of any Welch acquisition. He has said that his biggest mistake was GE’s 1986 acquisition of investment house Kidder Peabody (which Welch later sold). Welch said that the culture of Kidder was wrong for GE, and it was apparent that the GE chairman felt that he did not consider the differences in culture carefully enough when making the acquisition (see also Kidder Peabody).

 

 

With GE’s 1987 acquisition (it was actually a swap) of the French medical-equipment unit Thomson-CGR, Welch had his first major beachhead in Europe. In 1989, GE made another important European acquisition when it bought Hungary’s lighting company Tungsram. Since 1990 the company has made more than 133 acquisitions in Europe valued at $30 billion, and by 2001, GE had 85,000 European employees. One of the keys to GE’s acquisitions is its reliance on local talent. Although GE moves quickly to import its culture into the fabric of the acquired firm, it prefers hiring local managers who are familiar with the country’s culture (see also Globalization).

 

Over the years, Welch’s GE made hundreds of acquisitions in the U.S., Europe, Asia, etc. One of the keys to GE’s acquisition success has been its acquisition integration model, which was largely created by GE Capital (the division that does the most acquiring). Although all GE acquisitions are not created equal, there are a few general guidelines that the company follows when making acquisitions.

First, the company usually begins the integration process before the deal is executed. Next, GE does not limit the due diligence team to its financial team, getting human resources and general management immersed in the process as well. GE also brings in an integration manager, who works full-time on integration. Welch says that all of his acquisition experience taught him a valuable lesson: when he first started to acquire, GE would move slowly in integrating GE’s culture into the newly acquired firm. “Do it faster” is now the most common mantra heard after most GE acquisitions. Integration plans usually last a little more than three months. By the conclusion of that period, many key activities are already in process (sales forces are combined, the values articulated, etc.) as the “GEification”of the company begins in earnest (GE’s social architecture would begin to be integrated into the fabric of the newly acquired company).

 

Months before his retirement, Welch hinted that GE was going to accelerate the pace of acquisitions in the future. He said that GE is doing “four per week,” which would mean 200 acquisitions per year (almost double the rate of the previous four years).That number may sound particularly aggressive, but does not seem wildly out of line, particularly in light of the blocked Honeywell acquisition. With annual revenues approaching $150 billion, the company will need to accelerate the pace of acquisitions to maintain its double-digit growth targets.

 

1. Do not hesitate to defy company history: GE would not be one of the world’s most successful companies today had Welch been afraid to defy more than a century of GE conventional wisdom. It was that “wisdom” that had eschewed acquisitions in the past.

2. Be aggressive and move quickly: Welch showed that he was not afraid to move aggressively on the acquisition front. Although the deal was blocked, the Honeywell move was vintage Welch. By moving with lightning speed, Welch nearly snatched the deal out of the hands of a competitor.

3. Do not limit acquisitions to U.S. borders: Since buying Thomson in 1987, Welch has made foreign acquisitions a linchpin of GE’s growth strategy. Since then, the company’s most impressive growth rates have come from markets outside the U.S.

Throughout the years, Welch often said “I would have liked to have moved quicker” on a number of items. The GE CEO said that he would have moved quicker to “GEize” newly acquired firms.

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