(As originally published on LinkedIn, 7 July 2017)
Searching for digital growth? 5 things to keep in mind when pursuing M&A
By: Doug Jenkinson, a partner with EY Canada’s Transaction Advisory Services
Regardless of sector, it’s safe to say businesses are under a total transformation. And if you don’t think your business already is, it will be soon. We’ve seen recent deals prove no one is immune from being disrupted by big digital players – from retail and consumer products, to mining and healthcare.
Technologies such as the Internet of Things, artificial intelligence and big data, coupled with the ongoing growth in the creation and sharing of information, are changing the traditional business ecosystem in ways we never would have imagined a few years ago. Companies all over the world are trying to anticipate how digital will play a role in their industry and how best to prepare.
It’s no surprise then that Canadian executives think of focusing on innovation as a high priority. In EY’s 16th Capital Confidence Barometer, 40% say the ability to “future proof” their business model is the key strategic initiative. To do this, more and more clients are looking to acquisitions to bolster their digital strategy and capabilities. In fact, EY’s Digital Deal Economy report finds two-thirds of respondents plan to choose this route instead of building them in-house.
As companies turn to M&A to drive their digital agendas, here are a few things they should keep in mind:
- Look for solutions that fit the business issue, not the digital issue. Many companies have ramped up their technology investments in an effort to keep up, but haven’t developed a coherent strategy. To succeed, firms must first look to their corporate and customer strategy to understand how digital best fits into it all, and not the other way around.
- Be competitive. EY’s CCB report finds 62% of Canadian respondents are actively pursuing deals and 45% are looking at more than one transaction. This sentiment is echoed globally, too. But as global interest and confidence heightens, so does the competition for quality assets. Companies need to nurture their pipelines and be thoughtful about the businesses they’re looking to acquire.
- Use data and analytics. Companies should use analytics to leverage the data they have available to better understand the assets they’re looking to acquire. Leveraging this information will allow companies to target the right deals and help integrate successful acquisitions into their operations.
- Be creative. EY’s CCB report finds companies are resorting to acquiring the innovation itself, but that isn’t the only option. Depending on the company’s long-term strategy, ability to raise capital and internal capabilities, they may look to join ventures, alliances or partnerships to build their digital agendas.
- Build your case. A big part of building a successful case is motivating the management teams of the “seller”. As noted above, often times businesses need to look at alternative transaction structures such a joint ventures or alliances to accomplish their digital ambitions. Regardless of transaction form, Canadian business owners should look long and hard at why they’re the best partners or owners for their target businesses including the synergies they can bring to the table. Being able to clearly articulate that to the counterparty will help increase the likelihood of converting opportunities into transactions.
Although faced with increasing pressure to adapt to the digital world, businesses need to be thoughtful about the next steps. Don’t try to fit a square peg into a round hole. If the business you’re looking to acquire doesn’t fit with your overall strategy, consider other synergies. In today’s competitive market, you need to make sure you can clearly demonstrate to the seller why you’re the right fit and the value you bring. Pursuing quality assets that align with your overall strategy will serve you, and the seller, better in the long run.
How is your business getting ready for what hasn’t happened yet?