Mergers & acquisitions as a fast track for accelerating product roadmaps, gaining access to new technologies and markets, and fending off competitors is highlighted in the technology, media, and telecommunications (TMT) sector.
In 2017, the TMT sector recorded an all-time high of 3,389 M&A transactions globally, worth a total of $498.2 billion. Moreover, a sizable majority of U.S. corporate and private-equity executives (68% and 76%, respectively) anticipate an uptick in the number of transactions across all industries in 2018.
This paper looks at two common types of acquisitions occurring across the TMT sector: acquisitions of “unicorns” (companies valued at more than $1 billion); and “tech and talent” deals focused on small technology start-up firms, examining the challenges they pose and ingredients required for success.
After reviewing key drivers for technology acquisition, the authors remind that one prominent former industry CEO estimated that 90% of technology acquisitions fail.
These failed acquisitions typically have one thing in common: management didn’t understand the value drivers for generating a return on their investments. As a way of remedy, the authors recommend adopting an operating model-driven approach to due diligence and transaction execution.
The challenges in “tech and talent” deals include having key stakeholders be held accountable for a defined period of time and retaining talented employees (usually engineers) who now find themselves in a larger company that may differ significantly from their previous firm.
The solution includes clearly articulating the potential future for acquired employees and in having strong leadership in place to realize that vision, with the success of tech-and-talent acquisitions dependent on retaining and motivating talent.
While acquisitions of larger firms—including unicorns—are much more strategic in nature, eventually the acquiring entity will need to decide whether it’s best to integrate the acquired entity, in whole or in part, or have it to operate autonomously.
The authors then discuss the two factors can help TMT companies determine whether to integrate an acquired company or allow it to operate separately: its size and the similarity of its business model; and offer an operating model framework and detailed discussion of Consolidation, Transformation, Tuck-in and Bolt-on strategies.
The article concludes with a detailed checklist that fosters success in TMT mergers and acquisitions.
By, Joost Krikhaas, Principal at Deloitte; Jeff Loucks, Executive Director in the Technology, Media, and Telecommunications Institute at Deloitte; and Marco Sguazzin, Partner at Deloitte.
Content originally from Transaction Advisors
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