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Posted 10th June 2015

Transformations in the Digital Age

Against the backdrop of the recession, there has been a relatively low level of M&A activity over the past five years; however things very much heated up in 2014.This rise looks set to continue in 2015, with economic conditions improving and business confidence growing. In fact, the first quarter of

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Transformations in the Digital Age
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Transformations in the Digital Age

By Richard Goold, Partner at Moorhouse

Against the backdrop of the recession, there has been a relatively low level of M&A activity over the past five years; however things very much heated up in 2014.This rise looks set to continue in 2015, with economic conditions improving and business confidence growing. In fact, the first quarter of 2015 saw the most M&A activity globally since 2007.

Companies in the technology, media and telecoms (TMT) industries have seen an increasing blurring of the lines between them; BT has become a broadcaster, Facebook is making a play to become a payment system and takeovers such as Nokia and Alcatel-Lucent continue to change the competitive landscape. Quad play has been hailed as the saviour of TMT companies as each one tries to appeal to both more and a broader swathe of customers as well as create long-term loyalty in an increasingly open and fickle market.

Alongside this, many organisations are fighting for growth in what are becoming increasingly saturated markets. This is fuelling unprecedented revolution and reinvention through M&A activity as companies look to buy in the next big thing that could give them the edge over their competitors.

Yet companies are still facing regulatory burdens coupled with the pressure to get new products to market quickly. This pressure means that traditional approaches to transformation are viewed as clumsy, potentially bureaucratic and putting a spanner in the works of entrepreneurial spirit and invention. So how can TMT companies get transformations right in the digital age?

Mergers and acquisitions are still seen as the best way to increase market share in this sector, as well as to acquire new products and services that will attract new, and get additional revenue from existing, customers. They are also seen as a sure-fire way to deliver tangible value to shareholders and investors. Yet often the focus and effort is disproportionately focused on the pre-deal stage where target companies are identified and the numerous cycles of due diligence are conducted.  This is clearly a critical period however a comparative level of focus and effort must be committed to the post-deal activities and specifically the integration.  The success or failure of any deal can only be judged by how well it turns the promises made upfront into reality.  Using the business case as a key reference point alongside agreed guiding principles is really important if both long and short-term benefits and value is to be delivered.  Without expert planning and execution of the integration, companies can seriously compromise the benefits case, negatively impact customer service, disrupt core business operations, and ultimately, jeopardise what they have set out to achieve.

Successful post-deal integration should be viewed through two lenses, short and long-term. Firstly, creating a 100-day plan focused on executing the transition, while also maintaining operational business-as-usual. At this stage, companies should focus on realising quick wins so they can build and sustain momentum whilst delivering early benefits. Once this stage has been effectively completed, the 100-day-plus plan will focus on sustained, long-term transformation, embedded across the organisation. Whilst benefits and value may only be realised in the long-term, the ability to track and measure these has to be in place from Day One of the integration and this measurement should be sustained post-integration as the company moves to business-as-usual operations.

Throughout the integration, both organisations must make sure they do not lose sight of the business case. The motivations, ‘value drivers’ and benefits of the deal should be quantified at the start and reviewed regularly to maintain focus and guide the integration. Alongside this, the companies must conduct a thorough analysis of the existing operations and the corresponding strengths and differences of both companies. This honest assessment should help maximise the benefits going forward and allow the new organisation to create a clear shared vision and plan for the future.

Financial benefits are undoubtedly an important factor in the decision to proceed with a deal but it is important that the human side of the deal is not neglected. Without cultural integration, there is a risk that the team will not embrace the new vision for the future and this may affect motivation and ultimately have a negative impact on customers. It is also important to communicate regularly with the key stakeholders to ensure they remain engaged and understand the benefits expected from the deal.

Transformations are not the solution for every problem, just as not all companies should seek to merge or acquire others. Yet, when it works, it can provide a significant accelerator for growth, future success and market positioning.  This is only the case when both parties remember that the deal is not done when the papers are signed. This is only the beginning of the journey and it is by getting this right that companies will truly gain the advantage over their competitors and build a genuine, long-term relationship with investors, staff and customers.

Categories: Finance, M&A


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