The better the question. The better the answer. The better the world works. У вас есть вопрос? У нас есть ответ. Решая сложные задачи бизнеса, мы улучшаем мир. У вас є запитання? У нас є відповідь. Вирішуючи складні завдання бізнесу, ми змінюємо світ на краще. Meilleure la question, meilleure la réponse. Pour un monde meilleur. 問題越好。答案越好。商業世界越美好。 问题越好。答案越好。商业世界越美好。

How can you aspire to lead in the digital economy?

Following the road map to successful digital M&A is a key step.

Our second Digital Deal Economy Study, a survey of more than 900 executives, finds companies increasingly embracing the digital imperative. No surprise there, given digital technologies and applications are continuously reinventing and reshaping industry landscapes and business models.

Forging a successful digital future will likely mean buying as well as building capabilities in-house. Today, investors are prepared to reward companies that make bold technology and transformational acquisitions. Digital M&A is defined by the key processes and new ways in which digital capabilities are built through M&A. In the future, only those who can execute digital M&A over a sustained period will be equipped to prosper.

In our survey, 90% of companies are elevating digital priorities in their strategic planning over the next two years. But many are challenged to build an effective approach to fully realize their digital potential. We see clear differences between companies in their ability to transform strategic thinking into digital M&A capabilities and outcomes.

Digital disruption requires asking hard questions about what your organization is today and what it needs to be tomorrow. Becoming a leader in the transformational age requires a digital-centric approach to capital strategy, dealmaking and process. It’s now time to embrace the digital M&A mindset.


Key findings

Strategy and ecosystem

Understanding the evolving external environment and aligning strategic digital goals is the primary component for success. Acquisitions are clearly an important part of the mix, and we see 74% of our respondents looking outside their own companies for digital growth. Organizations are still placing significant reliance on corporate M&A departments, which often specialize in identifying and pursuing traditional targets in the company’s “home” sector. But finding targets for digital M&A requires a different approach. Building new digital ecosystems is critical to enable companies to identify new partners and targets.

0% of companies are making significant investments in building a digital ecosystem.
0% of respondents are considering digital in their capital allocation planning over the next two years.

Capital and portfolio review

Our survey respondents clearly understand there is a cost associated with digital transformation. However, many are challenged to get their capital allocation balance right. When asked if they have a coherent and aligned “buy” and “build” approach to digital, only 48% agreed. While organizations may be trying to respond to fast-changing technological landscape, it is important not to make hasty decisions or prematurely react to short-term forces. Continuously reviewing the business portfolio to sustain ambitious acquisition and investment goals is key to future-proofing the business.

Deal process

Our findings suggest an overall level of confidence around the processes companies are using to evaluate targets. However, looking at the deeper analysis of the new types of diligence, it is apparent that few are actually employing innovative methods. For example, only 38% are applying intellectual property analysis and just 22% are undertaking cyber diligence. Rebooting M&A capabilities and processes to meet the specific deal demands of the digital environment is key to success.

0% of executives say their M&A due dilligence processes are not "highly effective" for digital acquisitions.
Only 0% of companies are highly confident about their ability to retain talent following an acquisition.

Integration

Many organizations continue to use the approaches they employ for post-merger integration of brick-and-mortar assets for digital transactions. But, digital M&A requires a much more nuanced approach. Companies may also be targeting a number of digital assets at the same time, so the ability to integrate multiple digital assets simultaneously will be key to delivering potential. Realizing maximum value requires strategic integration approaches tailored to digital transactions.


Maturity index

On the basis of our research, we identify three levels of digital M&A maturity:

Leaders

A small and elite group of companies (14%) who have undertaken a significant transformation of their M&A strategy and approach. These are experienced digital deal-makers who have been prepared to question and update their M&A approaches for the digital economy, across strategy, capital, diligence and valuation, and post-merger integration.

As a result, they are building a clear digital advantage. Well over half of Leaders say that digital advances have improved their revenue, share price and market share over the past two years.

Adopters

A smaller group of companies (29%) who understand their own weaknesses. They are beginning to update their approaches to cater for the unique challenges of digital M&A, and are building the infrastructure and skills required to fully succeed.

For example, while they continue to rely heavily on corporate M&A departments to identify digital ecosystem partners and targets, they are also increasingly turning to additional, innovative vehicles.

They also understand the need for new forms of due diligence and integration KPIs, but have not yet acquired the full toolkit.

Aspirers

They represent the majority of companies (57%) who are finding key aspects of digital M&A challenging. They are struggling to build effective ecosystems, adapt due diligence to digital dealmaking and integrate their investments without destroying value in acquisitions.

They may be beginning to accept that digital M&A is different from traditional M&A, but are yet to modernize their approaches.

One of the risks they face is overpaying for digital assets, but they also face significant uncertainty about whether the investment will pay off.

Three levels of digital M&A maturity

 

Leaders

Adopters

Aspirers

Strategy and ecosystem

EY - Strategy and ecosystem Level 1

Leaders

EY - Strategy and ecosystem Level 2

Adopters

EY - Strategy and ecosystem Level 3

Aspirers

Have a coherent and aligned ‘buy and ‘build’ approach

Capital and portfolio

EY - Capital and portfolio Level 1

Leaders

EY - Capital and portfolio Level 2

Adopters

EY - Capital and portfolio Level 3

Aspirers

Budgeted acquisition capital allocated to digital

Deal process

EY - Deal process Level 1

Leaders

EY - Deal process Level 2

Adopters

EY - Deal process Level 3

Aspirers

Apply data analytics and/or social media analytics as part of due diligence

Integration

EY - Integration Level 1

Leaders

EY - Integration Level 2

Adopters

EY - Integration Level 3

Aspirers

Are confident in ability to scale up intellectual property and technology


What CEOs and boards need to ask themselves to build a better digital future in the transformational age

Buy versus build: future proofing the business
Are you building a holistic digital strategy?

Digital capital strategy: establishing a capital strategy to invest in digital
Are you explicitly considering digital priorities in your capital allocation planning for the next two years?

Strategic portfolio review: deciding when to divest to invest in digital
Do you have a clear long-term divestment strategy as part of your transition to a digital model?

Origination: building a digital ecosystem
Are you making significant and sustained investments in building a digital ecosystem?

Digital valuation: valuing a digital business
Are your valuation approaches for acquiring digital assets up-to-date and effective?

Digital diligence: protecting acquisitions from digital disruption
Do you carry out intellectual property, cybersecurity and technology due diligence?

Strategic operating model: maximizing return through smarter integration
Are you integrating acquired digital assets to help maximize value creation, including managing change in the parent company to embrace all opportunities?

EY - What CEOs and Boards need to ask themselves

Contact us

Global

Steve Krouskos
EY Global Vice Chair
Transaction Advisory Services
+44 20 7980 0346
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Julie Hood
EY Deputy Global Vice Chair
Transaction Advisory Services
+44 20 7980 0327
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Tony Qui
EY Global Chief Digital Officer
Transaction Advisory Services
+44 20 7951 5820

Paul Macaluso
EY innovation Leader
Transaction Advisory Services
+1 213 240 7040

Giles Morgan
EY Digital Director
Transaction Advisory Services
+44 20 7951 5820

Americas

William Casey
EY Americas Leader
Transaction Advisory Services
+1 212 773 0058

Asia-Pacific

Harsha Basnayake
EY Asia-Pacific Leader
Transaction Advisory Services
+65 6309 6741

EMEIA

Andrea Guerzoni
EY EMEIA Leader
Transaction Advisory Services
+39 028 066 93707

Japan

Vince Smith
EY Japan Leader
Transaction Advisory Services
+81 3 4582 6523