About the Guide:
Among the tools firms can use to grow, mergers and acquisitions (M&A) are perhaps the most daunting. These massive deals are rife with legal and bureaucratic hurdles – but have long been key in creating some of the most powerful and recognizable firms in history.
Many companies are pursuing M&A to grow and transform their businesses, and – while briefly hindered by the 2008 recession – there has been a surge in M&A activity. Today, mergers and acquisitions are once again at the forefront of corporate strategy. According to a report from Ernst & Young (EY), almost 60 percent of companies intend to acquire in 2018 and are “primed for record deal making.”
What is motivating such a surge in M&A activity? According to EY, corporate confidence is growing as the global economy improves, and mergers are expected to increase. Markets are more stable, and firms are more willing to engage in costly M&As to take advantage of the bullish trends.
However, these deals don’t look like they have in the past. Motives behind these deals have evolved as companies have transitioned to an economy centered around new technologies and the internet. This series of articles explains why M&A is an increasingly common strategy among leading tech companies and discusses divestiture as a tool for value creation.
“M&A goals are changing. Without question, many companies still use deals to achieve economies of scale and improve efficiency. But increasingly, they’re also trying to achieve transformation.” – PwC, 2017.
M&As are no longer conducted only to gain market share in the short term or to gain economies of scale; they are now drivers of technology advancement, according to EY. Further, Deloitte concludes that disruptive technologies and the digitization of business models have lowered barriers to entry in the market, and companies are placing innovation front and center of their M&A agendas in the belief that this is a way to unlock new sources of revenue.
While traditionally used to achieve economies of scale, the goal of M&A deals for many companies has pivoted toward achieving transformation. Research from PwC found that over 50 percent of respondents to a Fortune 1000 survey said that the largest transactions they had completed in the last three years were transformational.
Source: PWC, 2017
Further exploring these shifting motivations, the graph below from EY shows the reasons why companies pursued acquisitions in 2017. The most popular reason given by respondents was to develop new products followed by reacting to competitors. The emphasis now is more on technology advancement rather than factors such as securing better supply chains, organizational efficiency through hiring, or customer management.
Source: EY, 2017
A Deloitte survey echoes this sentiment. The survey, found in “M&A Trends – Year-end report 2016,” showed that the main goals that companies are trying to achieve through mergers are related to expansion in products, markets, and technology acquisitions. For example, Walmart is experimenting with alternate e-commerce platforms and acquired Jet, a move that is a huge component in the retailer’s digital transformation. Or consider Target’s acquisition of Shipt to shift to grocery delivery services and follow a new digital direction.
Source: Deloitte, 2016
Deals are changing. Technology giants are absorbing companies not for economies of scale and not for access to production plants – they’re absorbing companies to react to digital change. It’s with these new motivations in mind that we investigate mergers and acquisitions and how they can drive value amidst digital change.
Horizontal vs Vertical M&A
Differences, Motivations and Metrics
In our first article in this series on M&A we differentiate between types of mergers, explore risks and challenges, and suggest metrics for assessing results. We also look at the primary motivations that drive companies to pursue deals.
Tech Acquisitions and Acquihires
When to Buy Instead of Build
This second article in our series on M&A looks specifically at technology-driven M&As, including the risk and metrics involved in this new breed of strategic transactions.
Managing Tech Deals
Process and Management for Technology Deals
In this article, the third in our series on M&A, we highlight some of the main elements of a successful technology acquisition process and discuss the pre-deal due diligence and how to manage post-deal integration.
Divestiture for Value Creation
Examples from the Google-Motorola Deal
Divestment can create value for firms by selling assets that detract from core business functions. This article explains how to approach the sale of assets to maximize both the valuation and the outcomes for both parties to the transaction.
The final article in our series on M&A addresses leadership. Rather than lay out theory – because models for leadership success vary greatly depending on the context and the personality of the leader – we present a summary case study on Cisco, a company that has mastered the art of acquisition. We also provide insightful quotes from business leaders who describe their own experience with mergers.
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