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How Digital Disruption has impacted M&A Execution

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“We’re living in an exciting time, with enormous opportunity for firms with the expertise, ambition, and confidence to take command of their new digital ecosystems, transforming regions of potential risk into prospects for new developments”

In a fast-changing world where the next big thing could be a fad, getting M&A correctly is becoming increasingly difficult. According to EY’s latest Digital Deal Economy Survey, companies are even devoting significant amounts to digital tools,

 In numerous ways, the arrival of these digital instruments is beneficial. To begin with, they can help CFOs and their transaction teams keep up with the frenetic pace of M&A. According to the 2018 M&A trends study by Deloitte, both companies and private equity investors expect more M&A activity in 2018 than in 2017, and 2017 similarly saw an uptick in that case from 2016. When companies were questioned in spring 2016, they considered “organic expansion” as the most likely use of their cash at that time and the most current poll indicated that M&A is now the most popular option, with 40% of respondents citing it.

CFO’s may be able to play a more strategic role in M&A with the help of these new digital tools. While top financial executives have traditionally been involved in mergers and acquisitions, their typical responsibilities are focused around post-merger integration. Today, however, CFOs are taking a more holistic approach to M&A by not only assisting in the identification of acquisition candidates but also in explaining the theory behind proposed transactions and addressing due diligence in a larger context. They are also significantly involved in keeping deals on track, tracking predicted synergies and assuming ownership of the entire deal as it progresses.

However, in their zeal to expand their digital capabilities, companies run the risk of making the incorrect sorts of acquisitions and alliances — ones that appear to address immediate demands but don’t help promote long-term success. To make sure they choose the proper targets, they need to better comprehend the possible upsides of taking the proper strategic risks.

Let’s discuss some key challenges that companies face while trying to make a deal:

  • Industry convergence is increasing the complexity of Mergers and Acquisitions –  Businesses are increasingly buying beyond traditional boundaries as industry lines are blurring. Disruptive forces may appear from unexpected directions, and if you are unable to anticipate them, you may be left behind. This can provide several difficulties, ranging from the requirement to learn new business areas to the need to adapt and adjust to new environments.
  • The need for portfolio management is growing – Companies have been obliged to actively examine their existing portfolio significantly more regularly as a result of digital disruption. You may need to sell to raise funds for new purchases. But, with the landscape changing so quickly, how can you know what to buy, keep, and sell? Making changes to your portfolio to make it more suitable for your objectives can introduce new difficulties and hazards. Deals are increasingly being structured in several ways, from joint ventures and partnerships to alliances. With additional people, systems, and places to manage, the environment becomes significantly more complex.
  • Valuations may include unprecedented assets– When it comes to bidding for new firms, many corporations still rely on old valuation approaches, such as precedent transactions. This puts you at risk of not just overpaying for the objective, but also of not knowing what you’re getting. Are you buying the tech assets, the IP, or the people when you buy cutting-edge technology? You will also have to find an answer to such questions while trying to make a deal.
  • Cultural clashes Getting the correct cultural fit when working or collaborating with potential acquisition targets and cutting-edge digital enterprises is important for long-term success. Most of these enterprises aren’t wanting to be bought up by larger corporations, and if you do, you risk ruining their innovative spirit, which accounts for a significant percentage of their worth.

After understanding the impact of digital disruption on M&A deals, we can estimate the consequences or rewards that it can fetch for a deal. Considering the present challenges, companies must reconsider their deal strategy to overcome all the hurdles in the deal-making process. Organizations must strike the correct balance between caution and opportunity in everything they do, from establishing their goals to finding targets, and from the valuation and due diligence to effective integration. But, what can you do to get a leg up on your rivals and how do you determine which targets/assets are the best deals?

Maybe, taking the following small important steps can help your deal generate a big turnover by using these digital tools like a ladder to your success.

Initialization of the deal-process

Finding the correct targets in an ever-changing environment necessitates a methodical approach. Companies should also try to stay away from the theatre of innovation by making acquisitions to launch high-profile initiatives with no long-term business strategy.

To begin with, learn about the effects of disruptive forces on the industry. One strategy is to modify the way you think about risk management and give strategic decision-makers in your company a far better grasp of where the threats and opportunities are. Other important questions to be considered while doing your homework can be:  What are the business models that are propelling growth and what are your competitors up to. In such a situation, a data-driven strategy can assist you in identifying the skills in which you should invest.

A digital due-diligence

It’s vital to examine the asset from every viewpoint, and classic M&A due diligence and valuation techniques aren’t cutting it anymore.

In such a case, it becomes imperative for companies to analyze the digital picture for both the firm and the markets in which it operates when assessing a new acquisition, alliance, or joint venture. For the successful completion of the digital due diligence process, answering these few questions might be of some help while making the deal.

-Is the target more likely to disrupt or be disrupted by its peers?

-Are you using the proper tools to analyze the correct data?

-Are you asking the necessary questions to ensure that this deal is trustworthy?

Focus on data-driven methods for asset valuation that incorporate a variety of methodologies. To fully grasp the value of acquired assets and reduce any potential risk, combine data and social media analytics with innovative processes like IP and patent examination and cyber and code diligence. You risk overpaying for an asset if you don’t conduct a comprehensive analysis. You can also come across other issues including IP exclusivity, cybersecurity, and employee non-compete provisions. Even the relatively easy problem of technical integration could take so long to resolve that the agreement no longer appears to be the answer it was when it was first proposed. Therefore, conducting digital due diligence might not only ease and less complicate the otherwise tedious process but also, help in giving us more time frame for the completion of other tasks.

Post-Merger Integration

Consider an integration strategy as early as your initial portfolio evaluation – and keep refining it throughout the deal process – or you risk encountering avoidable risks and squandering the potential rewards.

Depending on the assets and the nature of the acquisition, some companies will be left stand-alone and others will be incorporated right away with digital M&A. If you’re buying technology or patents, for example, you could want to integrate the technologies sooner, but if you’re buying a product or various business models, you might want to wait. You must comprehend this and choose the appropriate governance model from the start, or you risk not reaching the deal’s full potential.

While making the deal, when it comes to integration, organizations should focus on clear outcome-focused milestones rather than arbitrary measurements based on predetermined targets, timelines, and profit estimates. To choose the correct measurements, think about the outcomes you want to achieve. Most of the digital innovation is about the long-term potential rather than the short-term reward and having outcome-based metrics can enable more effective decision-making and allow for agile innovation.

How can we help you?

We’re living in an exciting time, with enormous opportunity for firms with the expertise, ambition, and confidence to take command of their new digital ecosystems, transforming regions of potential risk into prospects for new developments. In such a scenario, MergerWare’s new business mindset for the new M&A reality can prove to be the most prerequisite weapon for all your deals.

We at MergerWare assist companies in strategic growth by facilitating more integrated and operationalized mergers & acquisitions, joint ventures, and alliances. We specialize in assisting businesses in refining their growth strategies with prospecting the right deal, managing a good deal pipeline, due diligence and valuation, and M&A integration.

As M&A professionals, we understand the importance of data security and maintaining the confidentiality of information in an M&A context. This key factor is incorporated in the way we have designed and built our entire platform.

 Do you want to go for an end-to-end M&A process that is not only effective and streamlined but is also very efficient and reduces your overall time for deal success?

Visit and schedule a demo with one of our product specialists to learn more.