Digitalization is the inevitable future of M&A for companies looking to acquire aggressively for growth and profitability
In the 21st century, businesses are all about achieving growth and are constantly battling under pressure of growing faster and better. The C-Suite of companies often hear the words from senior management ‘increase shareholder value’, ‘growth’, ‘expansion’, ‘higher profits’ etc. to achieve financial stability, wealth maximization and gain competitive advantage over its business rivals. The constant pressure to achieve the optimal market share pushes them towards corporate transformation projects and M&A’s.
It is a well-known industry fact that given the high number of M&A’s pursued, over 60% of them fail to create any value. In spite of this staggering figure, most executives go ahead with deals as they fear that the risks of not doing anything are just as high.
M&A failure and why?
M&A failures can result due to a myriad of reasons, the often-cited examples are cultural integration issues, poor due diligence, negotiation errors, lack of involvement of owners, lack of clarity etc. But the core problem of M&A failures remains lack of discipline and control over the deal during the integration phase and the lengthy M&A cycles which typically ranges from 15 to 20 months from the date of announcement to full operational integration. During this extended phase often driven by regulatory requirements, most deals fail to reach their milestone during to impending complexities.
Disciple and Control: In most M&A transaction of large enterprises have teams working across the globe with data that is localized. Common mediums of data sharing, requires teams to hold regular meetings and update the deal manager and senior management regularly. The error of human element can lead to miscalculation on the time needed for each phase of the deal along with
Lengthy Deal Cycles: Deals often take too much time to materialize due to a number of developing factors and this can put a significant strain on the financial and strategic goals with which the deal was taken up. A higher than anticipated cost of acquisition, and the loss of key management personnel, key customers and realization of fewer synergies are among a few of the inherent problems that a delayed deal cycle can cause.
Digitalization of deal process, integration and synergy creation
Digitalization of the M&A process is the means to an end and the solution to curb the lacuna in the industry plagued by constant failure rates. A solution lies in a one platform or tool that can help put all the phases from M&A strategy creation to due diligence, transaction execution and integration. Most deals survive the entire breath of the deal cycle and fail at the milestone phase of ‘Post-Merger Integration’.
Some of the key problems with deal implementation that jeopardize the outcomes from a deal that are commonly seen are:
- Lack of a standardized M&A process within a firm
Most entities go through several deals without a standard process or template. With every new deal the processes have to be drawn out from scratch. The learnings from one deal are also seldom documented. The need of the hour are well established best practice models which are time tested which will help save time and effort on deals that are time critical.
- Lack of security and confidentiality
2018 has been a record setting year for data breaches and hacks. The importance of cyber security especially when two companies merge cannot be over emphasized. A data breach before, during or after a deal can cost the companies significantly in terms of penalties, charges and inevitable loss of reputation in many cases. The financial losses thus incurred can cause a severe disrupt in the total value creation of the deal. Having data across different work streams only makes it more susceptible to hacks and leakages.
- Lack of visibility on deal progress
Senior Management and the teams do not have visibility on where the deal stands at each stage and if they are closer to completion of the task. Risks and issues that arise during the cycle go unnoticed causing bottlenecks through the deal cycle.
- Difficulty in tracking deal performance
Deal performance is often not measured against the strategic goals, thus resulting in difficulty in synergy creation. Without benchmarking the performance without real time data on fingertips senior management is in no position to take tactical decisions during the course of the deal to ensure that things don’t go out of hand.
- Lack of a centralized tool or platforms
There has been an onslaught of various tools that aid and help in the M&A process but with inherent drawbacks, as a multitude of tools can potentially further cause inconsistency as data is now available on inconsistent data environments.
Digital platforms available in the industry today caters to these aforementioned points which are unique needs of M&A. MergerWare in one such platform which provides end-to-end deal management solution, ensuring that all gaps in the current M&A process is filled.
M&A with automated tools
Automation in any business segment, comes with the fear of job losses. However, automation in M&A would still need human elements working on cross functional teams which require complex thought processes. Automation would indeed make the M&A cycle so efficient that the team can put its focus on areas that necessarily need the human touch, such as cultural integration. It can also help the organization focus on strategic goals and daily operations without driving away managerial focus from spending extended periods of time on the implementation of the deals.
Digitisation of M&A will help companies change the outcome of their M&A, “believes Dharmendra Singh, CEO Mergerware. “Companies that are bogged down by the failure rates can now be assured that with their systems in place, it will bring more successes, higher deal volumes and have a positive effect on growth.
Every year the global deal values have grown substantially. As 2018 is stands to be another watershed year for M&A, automation can be embraced to serve as the panacea of most problems leading to better outcomes, healthier synergies which can drive successful companies and can change the global landscape of M&A and business.