Are You Chasing The Right Digital Assets?

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Are You Chasing The Right Digital Assets?
Are You Chasing The Right Digital Assets?

The strategic importance of digital mergers and acquisitions has risen greatly in recent years as companies realize that digital capabilities are critical factors differentiating performance leaders from also-rans. Deals involving digital assets have increased significantly over the past year as signs of a nascent recovery spurred companies to jump back into acquisitions.

But buying technology companies entails some unique challenges. Identifying targets and ensuring they can fulfill the acquirer’s ambitions requires companies to adapt how they approach each phase of the deal.

Two areas in particular trip up many companies. On the front end, buyers need to define a clear rationale and value-creation thesis for digital M&A that supports the corporate strategy. Then, once a potential target is identified, acquirers should match the diligence and integration approach to the unique value the deal aims to capture.

Establish a clear digital M&A strategy

All too often, companies take a “ready, fire, aim” approach to digital deal making, launching into acquisitions before they identify precisely what they hope to gain and how a given digital asset will help them accomplish the broader corporate strategy. If your goal is to dominate a multibillion-dollar market within 18 months, acquiring even several small companies is unlikely to achieve that target. Likewise, if you aim to gain access to 50 critical engineers and a patent, buying a 2,000-person firm is hardly a cost-efficient way to acquire those capabilities.

Establish a clear digital M&A strategy

All too often, companies take a “ready, fire, aim” approach to digital deal making, launching into acquisitions before they identify precisely what they hope to gain and how a given digital asset will help them accomplish the broader corporate strategy. If your goal is to dominate a multibillion-dollar market within 18 months, acquiring even several small companies is unlikely to achieve that target. Likewise, if you aim to gain access to 50 critical engineers and a patent, buying a 2,000-person firm is hardly a cost-efficient way to acquire those capabilities.

By combining the target’s proven technology with the acquirer’s established brand, worldwide reach, and customer support, the transaction brought the target’s automated inspection system to a wider range of customers in many more industries than the start-up would have been able to reach on its own.

In such scenarios, targets are typically small companies with one or two offerings and enough reference customers to attest to those offerings’ value. In some cases, the companies may not yet have a sales force; in others, a small sales force exists where the CEO and other top executives still play a lead role. In both situations, the buyer’s more sophisticated sales capability can accelerate customer adoption of the targets’ technology.