April 4, 2018 Industrial Companies Must Reimagine Their Approach to M&A

Digital is vastly accelerating M&A activity, but industrial companies risk leaving value on the table.

By J. Neely, managing director and global M&A lead, Accenture Strategy

Industrial companies recognize the vital need for cutting-edge technologies – but many are finding that it can be difficult to build the capabilities they need organically, at a pace quick enough to compete. That’s where M&A comes in. Rather than competing with digital upstarts, industrial companies are increasingly looking outside their four walls and choosing to acquire, with the goal of quickly advancing their technological strength.

But according to new Accenture Strategy research, many companies are failing to extract value from their M&A due to an inability to integrate diverse companies into the legacy business. This challenge underscores that digital deals demand a fundamentally different approach. As digital M&A activity soars, industrial companies will need to reimagine their deal process so they don’t risk leaving value on the table – from the targets they pursue, to their deal execution and integration strategy.

The rise of the “digital deal”

Digital needs are fast rivaling traditional reasons in spurring M&A. Our research shows that acquiring new capabilities and the need for next-gen technology are on par with traditional M&A triggers, such as expanding into geographic markets or industries. As high as 86 percent of industrial companies have either acquired or are considering acquiring a digital company to gain the latest talent and cutting-edge technology.

But, following their digital deal, our study found that nearly two in three (64 percent) industrial companies left their digital acquisitions as standalone companies. This comes despite companies at-large recognizing that technology (71 percent) and cultural (62 percent) integration are critical to acquisition success. In the face of new competition and industry disruption, integrating diverse cultures, skills and technologies can be the “secret sauce” to powering digital acquisitions in the industrial sector. It gives companies a distinct competitive advantage – allowing them to meld the best of both cultures and introduce newly combined capabilities that differentiate the business. Companies who continue operating in siloes can sometimes miss a crucial opportunity to reap long-term value.

Out with the old, in with the new

Technology is not only drastically accelerating M&A activity – it is rewriting the entire M&A process, too.

The companies getting it right are digitizing their start-to-finish M&A processes – from target screening to valuation, through to discovery and negotiation. Recognizing that digital deals are different, more than half of all industrial companies (54 percent) are using different pre-deal team and evaluation criteria for digital versus traditional acquisitions. Forty-seven percent use an entirely different playbook.

Beyond reshaping deal teams, digital technologies can allow industrial companies to generate better insights faster, run a smoother process and extract more value from their M&A. Analytics and applied intelligence can play a key role in helping human deal analysts sort through vast amounts of data – from financials, to company communications, social media and customer sentiment – and in cutting down due diligence time. Sixty-one percent of industrial companies say technology is already allowing them to achieve targets and capture M&A value faster.

Calling for digital leaders

To maximize the outcome of digitally-driven M&A, the right leadership needs to be in place. Eighty-six percent of industrial executives agree that companies can’t rely on their current M&A capabilities for digital deals and must hire digital leaders into their M&A organizations to succeed. And the majority – 88 percent – of industrial executives believe the CIO must have a seat at the M&A table.

Above all, M&A teams need leadership who can effectively guide companies on their own digital transformation journeys – and who understand the inbuilt digital capabilities and data approaches needed for acquisitions to succeed. This will be integral to integrating newcomers as rapidly and effectively as possible. The more digital is applied to M&A processes before deals multiply, the better able industrial organizations are to reap the benefits.

Spreading digital wealth

Harvesting the DNA of agile upstarts poses a great opportunity – but the process must be done thoughtfully. Industrial companies should take the following steps as they embark on digital acquisitions and embed technology into their M&A process:

• Determine the appropriate level of integration for new growth. The more digital acquisitions a company makes, the more necessary holistic integration strategy becomes.
• Create a distinct new process for digital M&A. From target screening to valuation, discovery and negotiation, a playbook that’s modified for digital gives companies a vital advantage.
• Leverage technologies such as analytics and artificial intelligence to improve end-to-end capabilities for all acquisitions—traditional and digital. Companies will generate better insights faster, streamline the process and extract more value from their M&A.

In this new environment, it is critically important that industrial companies throw out the old M&A playbook and lead with a digital-first approach. The companies who get ahead in the race to digitize their processes, effectively integrate, and appoint the right M&A leadership are best placed to win.

J. Neely, managing director and global M&A lead,
Accenture Strategy

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