AbbVie, how are you going to boost profits now?

The tide of tax inversions has started to recede, taking with it a substitute for real growth at some of our biggest companies.

AbbVie Inc. just decided to bail out of an acquisition that would have moved its headquarters overseas where corporate tax rates are lower than U.S. rates. AbbVie is the second suburban Chicago company to think better of a proposed inversion. Deerfield-based Walgreen Co. chose to stay home after taking heavy flak for even considering a relocation.

Drugmaker AbbVie, based in North Chicago, said recent changes in U.S. Treasury rules undercut the economics of its planned $54.8 billion acquisition of Shire PLC, a pharmaceutical company based in Ireland for tax purposes. The deal won’t officially die until AbbVie shareholders reject it, which seems certain now that the board has turned thumbs down.

AbbVie’s willingness to pay a $1.6 billion breakup fee to get out of that deal indicates the Obama administration’s crackdown on inversions is having the intended effect. I think the wave of inversions is over, at least for a while.

And the retreating waters reveal the underlying problem that spurred so many giant U.S. companies to look abroad in the first place: slow growth in their core businesses. If internal growth were strong, I doubt many CEOs would be devoting time and energy to elaborate tax-reduction maneuvers that draw considerable political heat.

“It’s hard to generate organic growth quickly” at sprawling multinational corporations, says professor Erik Gordon of the University of Michigan’s Ross School of Business.

Inversions offer a way to expand profit margins without having to boost growth organically. Lower taxes make a fatter bottom line, year after year. Now that solution has been snatched away. CEOs such as AbbVie’s Richard Gonzalez must find other sources of growth. Their primary options are acquisitions and internally generated growth.

“They need to do both,” says analyst Damien Conover of Morningstar Inc. in Chicago. “It’s acquisitions and product development.”

AbbVie didn’t respond to my request for comment, but look for the company to re-enter the deal market quickly. Mr. Gonzalez is under intense pressure to replace revenue AbbVie will lose when its blockbuster drug Humira goes off patent protection in 2016. Humira accounts for more than half AbbVie’s $18.8 billion in annual revenue.

Unfortunately for Mr. Gonzalez, he just lost a bidding advantage. U.S. companies looking to invert could afford to bid high for acquisitions because an overseas headquarters move would not only reduce tax rates but also unlock troves of cash tied up in their foreign subsidiaries. AbbVie, with several billion dollars in cash stored abroad, agreed to pay a 53 percent buyout premium for Shire.

Foreign acquirers with lower tax rates now can stay in the bidding, making it harder for U.S. companies to buy the growth they need. At the same time, the pool of viable acquisition candidates shrinks to those that deliver sufficient returns without the added kicker of a tax benefit.

Which brings us back to internal growth, a yawning gap for so many corporate giants. From AbbVie and Walgreen to Mondelez International Inc. and McDonald’s Corp., multinationals can’t squeeze enough growth out of core operations. That’s why so many have turned to substitutes like acquisitions, breakups, stock buybacks and, yes, inversions.

But in the end, there’s no real substitute for growing from within. Alternatives merely hide the gap and put off the day of reckoning. Companies that can’t produce their own growth eventually lose control of their destinies.

In that sense, inversions aren’t so much a tax avoidance tactic as a way of avoiding the real problem.

Joe Cahill covers the Chicago business scene on his blog.