Serial takeovers of failing rivals — the road to a turnaround company (1973)

A strong balance sheet is what makes a buyer

The core of this decision is that Amada met the capacity limit it hit on the way up not by building a plant but by buying distressed competitors. With land prices climbing and the machinery industry running on its own cycle, it avoided the risk of carrying land and equipment itself and instead took in, cheaply, companies that already had the site, the machines and the workforce, converting them into capacity that worked from day one. Respecting the other side’s face, avoiding share raids and taking control through negotiation was a Japanese manner of doing it — turning a country where dry takeovers do not take root to its own advantage.

What made it possible was the debt-free, equity-funded balance sheet built out of the lessons of recession. A company with little in the way of hidden reserves could buy rival after rival because financial soundness was what underwrote its credibility as a purchaser. Rebuilding failing firms systematically and binding their production into a division of labour is close to what would now be called a turnaround roll-up. Expansion by acquisition, though, has its outcome decided by the skill of each rebuild and by the cycle in the core business. How to assemble the vehicle for the next round of growth while the financial slack still exists — Amada’s choices in the 1970s put that question at the centre of management unusually early.