By, Sven Wahle, Managing Director at Accenture Strategy in Munich and Takashi Yokotaki, Managing Director at Accenture in Tokyo.
In a growing number of cases, large companies are turning to M&A to grow their digital capabilities. Virtually all large companies—96%—believe such investments are a central part of their corporate strategy.
Acquiring progressive companies is a much different ballgame than traditional M&A. Large companies must develop a new M&A strategy from target screening through integration.
Two of the biggest challenges facing large companies during target screening are identifying relevant technologies and dealing with the fast-changing universe of potential targets.
In the digital arena, most attractive targets are not going to be brought to potential buyers by investment bankers. Alternative screening approaches such as venture capital funds, accelerators, and open innovation should be explored.
It’s critical for companies to have direct contact with startups at an early stage to understand their business models before they attract the attention of other bidders.
When dealing with progressive companies, due diligence should be less financial and legal driven and more informed by technology knowledge.
Deep technology expertise and assessment skills, whether provided by internal experts or external specialists, are vital in determining the future viability and costs of a technology and whether a target fills a gap in the acquirer’s digital capabilities.
Once a target is deemed worthy of pursuit, the acquirer must move quickly to close the deal. One method of cutting transaction time is to streamline the deal approval process. If that’s not possible, another option is to delegate some deal decision-making responsibilities to an M&A person with the right technology knowledge and experience.
A company with major ambitions in the digital arena may find it makes sense to establish a larger, separate M&A group.
To unlock digital capabilities and innovation, companies need to tailor how they blend an acquisition’s business with the parent company’s. A company could fail to realize the full benefits from its progressive acquisition—or worse, destroy value—if it mishandles integration.
Certain elements of the target—brand, innovation capabilities, and people—are distinctive and should be preserved and nurtured. Doing so will help retain key talent and preserve an innovative environment.
Research revealed six in 10 companies felt maintaining a target’s innovative culture as much as possible is one of the biggest success factors for integration.