Companies are making digital acquisitions in quick succession to gain cutting-edge technology and new talent, but the majority are struggling to extract the full value of deals due to their inability to integrate diverse cultures, Accenture research finds.
It found that 73% of UK companies kept recent digital acquisitions as standalone businesses – particularly those operating in consumer goods and energy industries. This comes despite companies recognising that technology and cultural integration are critical to acquisition success.
The Tech-Led M&A study from Accenture Strategy surveyed 1,100 c-level executives from companies around the world – including 110 from the UK – to understand the driving forces behind the digital deal trend and the barriers to unlocking competitive advantage.
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Despite Brexit, digital deals have managed to escape the wider impact of uncertainty. 2017 was a strong year for UK M&A; there were 163 successful domestic and cross-border acquisitions and disposals worth £86.4 billion in Q3 (July-September) 2017 and 241 transactions valued at £33.2 billion in Q2 (April-June) 2017 alone, according to the ONS.
The rise of ‘digital deals’
Accenture Strategy research found that digital motivations are increasingly driving M&A transactions – 48% of UK companies making acquisitions said their goal was to gain next-generation technology, while 39% acquired to gain new capabilities. Companies operating in the industrial, travel and health industries have been the most active in acquiring digital companies.
“Our research indicates a positive trend towards businesses bringing in digital technologies and skillsets through acquisitions. Despite Brexit, these smaller deals have been relatively shielded from the wider impact of uncertainty. This ‘buy over build’ strategy comes in response to large companies wanting to fight back against new disruptors and accelerate their competitive advantage. But many are struggling to integrate diverse cultures – the ‘secret sauce’ powering digital acquisitions – which is key to companies accelerating change,” said Markus Rimner, managing director, Mergers & Acquisitions Europe lead, Accenture Strategy.
As companies look to embrace this trend of achieving digital deals to gain a competitive a shift in mindset around the boardroom table has been detected: 88% of business leaders now agree that CIOs need to have a seat at the M&A table in the early stages of discussions.
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This comes as the majority (83%) of leaders say they would benefit from digitising the target screening process and using artificial intelligence (AI), and 75% of executives agree that companies cannot rely on existing M&A capabilities for digital deals.
“Businesses cannot rely on the ‘same-old-same-old’ approach to M&A when pursuing digital targets. They need a different pre-deal team and evaluation criteria due to the size and makeup of these businesses. Artificial intelligence can help companies accelerate due diligence and ensure acquisition targets are the right fit. CIOs and CTOs need to be brought into acquisition discussions much earlier on than what’s currently happening,” said Rimner.