But at the same time, companies deemed likely to make deals to gain scale are frequently punished by investors who fear that CEOs will pay too much for the wrong targets. Damned if you do, damned if you don't.

Daniel Vasella, the chief executive of Swiss drugmaker Novartis, knows all about the syndrome. As Staff Writer Alison Langley reports in "Clinical Trial" (page 68), the 51-year-old physician helped create Novartis through a merger that made the company the world's second-largest pharmaceuticals concern in the late '90s. Since then Novartis has slipped to No. 6, with barely half the sales of global leader Pfizer, despite a commendable record of profitability.

Vasella wants to grow but is finding it difficult to fulfill his ambition. Basel's other big drugmaker, F. Hoffmann-La Roche, in which Novartis holds a 33 percent stake, has consistently rebuffed the CEO's overtures. He backed out of the bidding for Aventis a year ago in the face of French political opposition. Last month, he responded to those setbacks by spending more than $8 billion to acquire German generics drug company Hexal and its U.S. arm, Eon Labs. The deal vaults Novartis, the only big pharmaceuticals company with a major generics business, to No. 1 in the sector but does nothing to bolster the company's core drug business. Vasella is relying on heavy R&D spending to generate new products and says that if a suitable merger partner appears, he'll seize the opportunity. Investors can only hope this is the right prescription for growth.

Competitive pressure is no less intense in the European securities industry, where cost-conscious investors are putting downward pressure on already-thin brokerage commissions. This month, Institutional Investor reports on who's responding best, in our first-ever ranking of Europe's best trading firms. As Staff Writer David Lanchner explains in "The Top Traders" (page 35), the leaders are investing heavily in new trading technologies and putting more of their own capital on the line to complete trades for clients. With transparency soon to increase as a result of new British regulations on commission unbundling and best execution, the heat can only intensify. As one broker told Lanchner, "Unless we can become more efficient and use technology better, we will find it difficult to compete."