By, Nitin Kumar, Senior Managing Director at FTI Consulting.
There is a well-worn military expression: “no battle plan survives contact with the enemy.” Knowing this, a famous Prussian military commander had his forces participate in Wargaming, which is simulating operational and counter-moves on the field of battle in order to surface both unanticipated strengths and weaknesses, but above all, to subject existing assumptions to the uncertainties of fast-evolving, complex situations.
An adaptation of this rigorous military simulation, Business Wargaming, is a relatively recent development and its implementation is growing rapidly, given the extraordinary levels of uncertainty and disruption in the technology industry today.
In other words, it is driven by the recognition that it is a competitive advantage to be able to develop a strategy and execution plan in an environment defined by unknowns.
Acquisition volumes in both 2016 and 2017 have been at record levels, and as disruptive technologies continue to emerge quickly, one can only expect this trend to continue as the race for assets and capabilities intensifies.
Simultaneously, never have the set of uncertainties dominating the political, economic and regulatory spheres, the investment community (and the growing cohort of activist shareholders), technology obsolescence and shifting business models—not to mention basic customer preferences—been greater.
In this context, the author suggests it seems naïve to argue that conventional linear strategies are an optimal way to craft an M&A process, nor will they produce results when it comes to the key driver of fully realizing M&A value: integration.
Business Wargamers can experience firsthand the multiple and cascading pressures from frantic traditional competitors, emerging non-traditional competitors, disruptive technologies, changes in the geopolitical landscape and a furious race to acquire digital assets.
Acquiring companies can face pre-emptive strikes from competitors on the very targets they had identified as a key pillar of their own strategies.
The acquisition itself represents only the very first salvo of battle: once an asset is acquired, executing on all the factors that determine just how smooth and successful an integration will be, in many ways, defines the ultimate transaction value far more than the acquisition price.
Higher multiples increase integration pressures and creation of value, and evidence suggests there are fewer opportunities to achieve conventional back office synergies. This is especially true with smaller digital assets, where the value drivers are centered around products, customers and revenue growth.
Integration leaders need to consider the value of exposing existing strategies—and the assumptions that underpin them—to the fluid, difficult, and fast-evolving environments that any modern enterprise operates in. Doing so means an integration strategy development process with reduced risks due to uncertainties.
The author outlines the case for developing new, non-linear processes that create M&A value from strategies focused on M&A integration. A key driver of this value—and foundational to testing and refining these strategies—is Business Wargaming, which develops a framework for strategy through execution based on key criteria, enabling optimal integration and value creation outcomes.