How Technology Is Changing M&A in the U.S. - SPONSOR CONTENT FROM ACCENTURE STRATEGY

May 18, 2018

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Traditionally, companies that have acquired others or merged have done so to drive synergies, acquiring targets similar to their own organization. But digital deals—fast gaining M&A share—are different.

In a digital deal, the acquiring company pursues technologies or capabilities it does not possess. The rise in digital deals indicates many large organizations are realizing organic growth will not give them the rapid rise in digital capabilities they desire. They pursue these capabilities with dogged determination because digital fuels new business growth, the Holy Grail of today’s activist shareholders.

M&A activity overall has trended upward for decades. Accenture Strategy research shows 87 percent of U.S. respondents indicate their firm acquired another company in the past two years, while nearly a third acquired five or more companies.

The rush for digital capabilities is a major contributor to recent increases. More than half of U.S. companies logging M&A activity described themselves as primarily acquiring digital companies or assets. Accenture Strategy research indicates that the disruption and differentiation that digital technology can create will place it at the center of acquisition strategy for the foreseeable future.

But as companies pursue the acquisition of other organizations for their digital prowess, a second layer of the digital deal conundrum reveals itself. It is not enough just to acquire or merge with digital savvy. Companies must then spread that digital savvy across the broader organization.

To make digital acquisitions a success and have them contribute to scaling new business opportunities, digitizing the value chain, or providing digital products and services, companies need to transform their M&A approach.

Because a digital deal is different—from size, scope, and valuation to playbook and integration.

Technology can make a significant impact on the success of M&A, from enabling an accelerated and better-informed deal process to improved post-merger integration. Company executives are recognizing this, with 84 percent of companies in the report agreeing the CIO should have a seat at the M&A table.

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SOURCE: Accenture Strategy 2017 study, “Tech-Led Change in M&A”, a survey of 1,100 C-Suite executives representing 13 industries in seven countries. Accenture Strategy explored strategic areas and opportunities where companies are harnessing technology to increase business value.

 

Of the companies Accenture Strategy surveyed, the learning curve seems to be fast and steep for digital mergers and acquisitions. Already, 61 percent use a different pre-deal team and evaluation criteria for M&A investments. More than half (56 percent) follow valuation and cost models different from their traditional M&A toolset. Forty-nine percent use a different playbook. In addition, 58 percent say technology is already allowing them to achieve targets and capture value faster in their M&A deals.

It’s not just the tools that must differ for digital deals. Three out of four executives (78 percent) agree or strongly agree that companies cannot rely on their current M&A capabilities for digital deals and must hire digital leaders for their M&A teams in order to succeed.

Applying digital to pre-deal processes helps firms competitively, but gains erode quickly if companies cannot reap the benefits of the merger or acquisition in short order. Digital is the only tool at their disposal that can deliver within the accelerated time frame today’s rapid business pace demands. But many companies currently fall short in this area.

One Accenture Strategy study shows only 7 percent of respondents are currently able to acquire a progressive target from contact to closing within 120 days. Seventy-one percent take between four and nine months. Survey participants told us technology integration (71 percent) and the maintenance of the target’s innovative culture (62 percent) determine the success of progressive company acquisitions.

Many acquiring companies are undergoing their own digital transformations, but most have not digitized completely. For instance, 57 percent say they have a platform in place to enable new businesses and systems to rapidly integrate, as well as digital expertise to support the integration. Surprisingly, it is often M&A that pushes companies to digitize more broadly; 85 percent of executives surveyed agree or strongly agree M&A activity has forced their company to develop a data strategy. Because of a merger or acquisition, they were forced to look across functions to ensure data compatibility—and a data strategy was born. The more digital is applied to internal M&A processes before deals multiply, the better able organizations are to reap the benefits of digital deals and traditional acquisitions alike.

Applied effectively, digital technologies help C-suite leaders transform M&A from an art to a science, to increase its capabilities as a driver of innovation and business growth. Leaders are already making some important changes.

Treat Digital Deals Differently: Leading companies develop a distinct process that best suits digital investments. From target screening to valuation, discovery, and negotiation, leaders see a modified playbook as an advantage.

Spread the Joy: Successfully acquiring a digital disruptor is just the starting point. The parent company must determine the appropriate level of integration to leverage the acquisition’s full value potential. Leading companies are then able to spread that digital savvy across the broader organization and scale new business growth. As serial digital acquisitions become more common, a holistic integration strategy becomes more complex but also more necessary.

Green-Light Digital Internally: Forward-thinking companies leverage analytics and applied intelligence to vastly improve their end-to-end capabilities for all acquisitions—traditional and digital. This allows them to generate better insights faster, run a smoother process, and extract more value from their mergers and acquisitions

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