Each on its own can turbo-charge transformation. Together, they form an unbeatable source of competitive advantage.
Technology disruption—whether it takes the form of digital, cloud, analytics, the Internet of things (IoT) or artificial intelligence—is introducing new business models and forcing traditional communications, media and technology companies to up their game. For established players, staying ahead of industry innovators and new agile startups is critical—and harder than ever. Fortunately for them, M&A can level the playing field and open the door to future game-changing transformations.
Forward-thinking communications, media and high-tech companies have caught on. They are acquiring companies with technological expertise they can then use to develop new offerings, redefine industry boundaries and drive top-line growth. One telecommunications client, for example, used M&A to acquire IoT and analytics capabilities in order to enter the automotive market. In addition to driving new revenue streams, the company estimates its acquisition of new technologies will enable it to grow its customer base by over 70 percent within two years.3 That company is not alone. Our research found that 42 percent of executives see the need for acquiring next-generation technology as a trigger for M&A.4
According to 58 percent of executives, technology is a key enabler to unlocking merger synergies and challenging new market entrants.5 The quality of the resulting IT environment also plays a critical role in the success of future transformations that M&A deals might enable.
Unfortunately, many communications, media and high-tech companies still run systems for billing, provisioning, customer service, production or countless other functions that are decades-old. For them, integrating first and modernizing later is usually not a winning strategy. That’s because cloning or merging outdated legacy systems during M&A comes with considerable risk. The older the systems, the more difficult it will be to integrate effectively or achieve future synergies and transformation goals. Upgrading systems before or during M&A integration is one way to avoid the legacy technology trap. But this approach may not always be best. For every dollar spent to upgrade systems, an additional $1.30 to $1.50 is usually spent during later transformation efforts.6 Furthermore, those later transformation efforts often take a long time. In today’s fast-paced competitive environment, there’s just no time for multi-year, post-merger transformational journeys.
The end of either/or thinking
A better option for many communications, media and high-tech companies is for them to carry out their M&As and their system transformations at the same time. In this scenario, the transformational roadmaps, which spell out how a merged technological capability will leapfrog the competition, must be an integral part of merger integration plans and activated as soon as integration activities are under way. The result? Modernized business platforms that help drive business growth from day one.