Digital M&A Is Here to Stay

Digital transformation of the global economy has affected every industry, and clearly, is here to stay. Nowhere does this have more impact than in the dynamic M&A (mergers and acquisitions) field of digital companies. Transactions involving digital assets have significantly increased with the surge of technology as a result of the pandemic.

Approaching a digital deal requires a steady eye – this means a clear rationale and value-creation playbook that supports corporate strategy. Many companies take a “ready, fire, aim” approach to digital M&A without having clearly identified the potential gain and how a given digital asset will support the brand. For example, if the objective is to sweep a multibillion-dollar market in under a year, the acquisition of many small companies is unlikely to meet that target. On the other hand, if your interest is in gaining access to a small group of specialized engineering talent, purchasing a 3,000-person organization won’t work either.

The essential first step and right question to ask is what type of deal will support and accelerate corporate strategy? Generally speaking, the four types of acquisitions would be as follows:

Customer-ready offering: This might be a case of a company wishing to add a product/service that fills a gap in its current portfolio to gain market share. These types of targets tend to be smaller companies, with enough customer base to support their value. It may or may not have a sales force, but either way, the buyer’s more mature sales capabilities can accelerate customer growth of the new offering.

Distinctive Technology: the acquiring company is seeking a specific technology like an algorithm or digital analytics technique. Trademarks, brands or patents might be attached to the offering, and the acquirer can be highly instrumental in supporting a start-up’s access to immediate traction.

Distinctive Talent: The business landscape has exploded with boutique start-ups that are bursting with talent but struggle to grow revenues for a variety of reasons. Ideas-driven resources are valuable, and this type of acquisition can result in huge payoffs. Talent retention should be a key consideration however, and any deals should be structured in a way to ensure that employees remain with the acquiring company.

Stake Out an Adjacent Market: Any time a company is looking to establish itself in a new market, a great strategy involves the acquisition of digital assets that ensure that smooth and successful transition. This might involve building on the target’s combination of talent, products and operating model. If the acquiring company already has a foothold in the adjacent market, it might strengthen its position simply by acquiring one of the market leaders.

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