Going forward, corporate value's emergence will have little to do with a smoothly humming global engine of expansion.  Rather, value will be far more contingent on what each corporate management team does to discover and maximize its own growth prospects.

Seeking Growth Via Transaction

Companies seeking turbo-charged growth have often resorted to merger or acquisition, which has been illustrated in recent months. Globally, deal volume jumped 15% in fourth quarter 2009, to $684.9 billion, from $594.7 billion a year earlier, according to Dealogic.  According to Morgan Stanley's European M&A team, the dollar value of European deals could rise as much as 30% in 2010.  Sharp improvement in the fundamental financial posture of many corporations-and hence renewed management appetite for bold growth strokes-is strongly fueling this uptick in deals. M&A appetite and capacity will increase throughout 2010, global consultant KPMG forecasts.

M&A's resurgence as a growth tool is meaningful for an active value manager, because M&A is one of several key "catalysts" of corporate transformation that can signal the likely emergence of new value.  Other catalysts well suited for response to the realities of today's slow-growth, post-recession world include strategic restructurings, changes in management, spinoffs, downsizings and recapitalizations.

For value investors, identifying corporate managers committed to this difficult work demands careful evaluation, for indeed, some evidence already suggests that many managers and organizations will not rise to the challenge.  A recent study by Boston Consulting Group strongly indicates, in fact, that too few companies are taking the long term, defensive measures necessary to survive, much less thrive, in the Great Recession's wake.

BCG surveyed more than 400 executives at $1 billion-plus companies in seven countries.  The view of these executives is appropriately sober: Most are projecting lower profit levels and more difficult growth.  In response, most are taking short term defensive actions, such as increasing focus on key customers and reducing administrative spending.

But far fewer are planning longer term, arguably more wrenching moves, such as exits from product lines, customer segments, or sales channels, or the divestiture of non-core businesses.  Fewer than a quarter have made managing cash a priority; very few say that balance sheet and debt restructuring will be important.

Such longer term moves are part of the necessary, non-glamorous, often painful but completely critical, set of responses that managers need to bring to bear to realize corporate value in a far more demanding world.  The global economy will reward companies that take these necessary transformative steps-and the markets will reward investors that make a commitment to such companies early.  That outcome is the goal of an active value investing approach.

Assessing Management's Intent

It's one thing to recognize the impact, in the abstract, of corporate growth catalysts, but quite another to spot corporate management teams that will actually realize the potential of these situations through their actions.