Should tech be at the M&A deal table? Yes!
July 15, 2022
July 15, 2022
The benefits of stressing the value that technology brings in mergers and acquisitions (M&A) are well documented. In a recent Accenture Strategy survey, CEOs indicated that technological capabilities are the most important factor to them when assessing their portfolio ahead of products, services and talent. Accenture Strategy’s research shows that 80% of successful transactions greater than $1 billion in value significantly highlight technology.
Putting that emphasis early in the M&A lifecycle requires taking a “technology first” approach. Technology first simply means putting technology teams and their vision, principles and transformation goals on the deal table even before performing due-diligence. Including your technology team when analyzing assets or a target company enables you to meet objectives much faster and achieve even bigger benefits.
Technology has become an integral part of almost every business process. So, it’s essential to first look at how two organizations’ technologies will come together in a transaction. The technology first approach can reveal opportunities that might otherwise remain hidden until much later.
Our analysis focuses on four broad categories of benefits: financial, strategic, operational and finally—and often underestimated—cultural.
1. Financial. Technology can directly or indirectly enable up to 40% of both revenue and cost synergies. It is at the heart of merging capabilities and designing new products and services. Examples of these services include customized systems, artificial intelligence (AI)-based algorithms to analyze customer demands or updates to backoffice platforms for new capabilities.Technology enables both revenue synergies from margin and sales growth and cost synergies from rationalization and optimization.
Early analysis of your technology's future state can uncover opportunities that could otherwise surface much later in the deal cycle. In divestitures, looking at technology spend early on allows organizations to create reliable cost models to price models sooner.
2. Operational. Involving your technology organization and domains early in the process is crucial to address two key areas of risk that are unique to large-scale M&A. The first risk area is how to capture and execute the vision of the combined company through technology. Aligning on this vision, and how technology can bring it to life can be an arduous process. In a recent collaboration with Accenture M&A strategy Lead for Western Europe, Gerald Duarte, we have found that early engagement with technology teams gives us a better understanding of the technical limitations and design implications that influence planning. With the second key area of risk, early engagement also helps lessen risks when implementing complex enterprise solutions.
Similarly, we typically see technology teams in most organizations focus on program management skills. Technology teams can bring governance, planning and rigor to M&A programs early in the engagement, increasing certainty in timelines and shoring up execution. Recently, working with other M&A colleagues Stew Levine, and Zeeshan Shafi, we assessed over a thousand systems to generate 200+ technology integration initiatives for post-close execution. Over 80% of these led to synergy realizations totaling more than $600 million.
3. Strategic. Successful leaders understand that M&A promotes strategic transformation and the success of a deal often makes transformation a requirement. Building strategic M&A processes are particularly true for serial acquirers—as outlined in our recent report, in North America alone, serial dealmakers outperformed less frequent acquirers by 129%i. Teams should be asking the following questions: what will the operating model design be? What will the customer ecosystem look like? What direction will product strategy take?
The sooner these decisions are made and their implications assessed with technology teams, the faster teams can plan and course correct as needed.
4. Cultural. Culture has a profound effect on organizational success, especially during M&As, as companies with different cultures must come together or create new cultures. Technology has a critical role to play when it comes to fostering a joint culture. Launching new branding, converging email and implementing collaboration tools can go a long way toward making employees feel like they are a part of the new company, uncovered through work with Ricardo Alves Polisel, Saul Shagam and Robert Stocklossa.
For example, in the pre-close phase of a major Retail acquisition, leadership decided to allow customers to use gift cards from both companies starting on the closing date. By engaging technology early in strategy discussions, we were able to work with Marketing, Legal and other divisions to develop a solution that was ready on that day. The solution helped generate over $6 million in additional revenue over the first 30 days. It also allowed the two Retail chains to be seen as one in the eyes of the customer. Culture change and communications strategies, when put in place in the early stages of the transaction, can help educate employees and customers, reducing negative experiences.
Taking a “technology first” approach doesn’t mean everything else is secondary. Rather, it means bringing technology to the table early in the deal's lifecycle. Our experience shows that early engagement can result in more tangible and well-defined financials, better cost control and faster cultural integration.
i As measured through weighted Total Shareholder Returns (TSR)