Content originally from Transaction Advisors
Recent Accenture Strategy research of 1,100 C-suite executives around the globe reveals that acquisitions centered on digital capabilities are on the rise.
More than half of companies logging M&A activity (52%) described themselves as primarily acquiring digital companies or assets. This is not surprising, given more than a third (37%) of organizations are pushing business model transformation to drive projected 2020 growth.
In particular, companies actively acquiring digital companies must operate within shorter sign-to-close windows to remain competitive—and, paradoxically, digital is the only tool at their disposal that can deliver within the necessary accelerated time frames.
Predicting that Transitional Service Agreements (TSAs) between a buyer and a seller will be a relic three to five years from now, the authors discuss the model’s inherent disadvantages to both buyer and seller.
The seller is saddled with long-term TSAs in operational areas of the sold business that distracts focus on the remaining business. It also delays rightsizing of their organization and brings potentially higher stranded costs.
While TSAs ensure business continuity for the buyer, they also delay synergies and create higher operational costs that limit buyer flexibility and increase dependency on the seller.
Therefore, while TSAs may appear to be purely administrative, in Accenture’s experience they often have strategic consequences for both buyer and seller. Not paying sufficient attention to TSAs increases the risk that players will leave value on the table.
Overall, by replacing the elements of the traditional closing model with more innovative, technology-fueled ones, companies can drive a deal to conclusion faster, reduce stranded costs, achieve synergies faster and minimize cross-company dependencies.
In “industrializing the M&A process,” the authors assert that cloud technology, digital ecosystem players, blockchain and smart contracts can make the transfer from one entity to another straightforward and speedy—eventually eliminating the need for TSAs of any nature.
Moreover, an increasing number of companies, including Accenture, are stringing smaller acquisitions together to create or expand a capability.
In conclusion, this getting to market advantage—which can be as great as US$15-$30M for the buyer and US$15-$45 million for the seller‑relies on framing buyer responsibilities early, embracing the new digital ecosystem and executing the business model at conference-room scale to test readiness. In doing so, companies can “sweeten the deal.”
By, Gregg Albert, Managing Director in the Corporate Strategy and Mergers & Acquisitions practice at Accenture and Gerald Duarte, Managing Director in the Corporate Strategy and Mergers & Acquisitions practice at Accenture in the Netherlands.
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