In 2017, global M&A activity exceeded $3 trillion for the fourth consecutive year and 2018 is on track to continue this streak.1 Accenture Strategy research shows more than half of all companies engaged in M&A have focused on digital companies or assets.2
M&A success can no longer rely on traditional strategies, platforms, tools or processes. In fact, 69% of traditional companies find it difficult to identify digital technologies to buy, and an equal 69% find it difficult to assess new technologies.3 Once a target is identified, 62% have found it hard to value the target and 63% take longer than seven months to complete the deal.4
A fresh approach is needed. Companies must first understand their M&A maturity (i.e., capability), subsequently build their M&A digital muscle, and finally flex that M&A muscle on their next transformative digital deal.
UNDERSTAND YOUR CAPABILITY
To measure M&A capability, a comprehensive assessment is required. This will create a comparative baseline to understand the as-is with a ‘score’ across core M&A competencies. The baseline will help shift orientation towards digital capabilities and processes. Accenture Strategy has developed an M&A Maturity Model® to inform areas of investment. However, this will not solve all challenges.
EQUIP YOUR DEAL TEAM
Spikes across all dimensions of M&A maturity stages aren’t required or practical. However, building M&A digital muscle will likely include investment and training on new tools and assets by deal and integration teams. Corporate M&A leaders have been early adopters on M&A tech. Among those active in M&A in the past two years, 61% leveraged technology to drive synergy and integration, and 57% modified their playbook for digital investments.5 For example, a multinational oil and gas company redesigned their M&A playbook before starting an M&A spree to acquire new and complimentary businesses to double revenue.
REFINE YOUR M&A PROCESSES
To complement their tools and assets, leading companies continuously refine their M&A methodologies and processes. These processes could range from valuations and target screening approaches to divestiture and synergy planning.
On valuations, particularly for a not-yet-profitable digital start-up, the traditional discounted cash flow (DCF) analysis and multiples approach are not sufficient. In life sciences, traditional valuations have been supplemented with techniques based on where pipeline medicines are in the FDA approval process and the associated therapeutic area. On target screening, a French multinational utility company used a proactive approach leveraging automation. This allowed more time to be spent on business case review and less time on standard screening.
These processes can also extend to how lessons learned are not only administered on completed deals, but also on terminated deals. The feedback should be representative of the deal’s life cycle, and should include input from functional teams, cross-functional teams and stakeholders of various seniority. It is important to also action these lessons learned and revise processes within M&A playbooks. This positive feedback loop is essential to the refinement of any organization’s M&A process and the development of that M&A digital muscle.
FLEX YOUR MUSCLE ON YOUR NEXT TRANSFORMATIVE DIGITAL DEAL
Building M&A digital muscle is analogous to an athlete preparing for competition. To stay ahead, preparation and training is required before you enter the field of play. As you look to pursue your next transformative digital deal, invest in market leading technology, and refine your M&A processes first. When a deal is imminent, you will be ready to execute your deal and integration against the new rules for digital M&A with full force.
1 Global M&A Exceeds $3tn for Fourth Straight Year. The Financial Times, 2017
2 Accenture Strategy research, “M&A Research,” 2017
3 Accenture Strategy, “Chasing Rabbits versus Stalking Mammoths in M&A” 2017
5 Accenture Strategy research, “M&A Research,” 2017