Digitization – Make Or Buy? M&A In The Digital World

Kerstin Heining

For many companies, digitization is becoming prevalent. Hyperconnectivity, supercomputing, cybersecurity, a smarter world through sensors, robotics, artificial intelligence, and cloud computing are dramatically changing the economy. The entire value chain of many companies is becoming digital. Enterprises across industries can reimagine their business models, business processes, and work. Business leaders today are constantly asking themselves how they can transform across five pillars:

  • Assets and Internet of Things
  • Customer experience
  • Core business processes
  • Workforce engagement
  • Supplier collaboration and business networks

Early adopters are winning. Based on a recent study by EY, 90% of executives are facing increased competition from companies that have been quicker to embrace digitization. But how can companies speed up bridging the gap with their competitors?

Organic growth is one answer, but not the only one. It is slow and can take years to make the expected impact on the bottom line. In that context, companies are increasingly investing in acquisitions to accelerate the digital change. 67% of the respondents in a recent study by EY see M&A as the most efficient way to get there – acquiring digital capabilities, assets, and technologies to bridge gaps and accelerate growth. 2015 was a banner year for M&A activities, and the trend continues in 2016.

Capital is still cheap, cost of debt is still on a low level, and the cash reserves of huge companies are high – the best prerequisites for acquisitions.

But are the deals always successful? What are the challenges companies are facing after an acquisition to get the expected return on investment? 39% of corporate respondents in Deloitte’s M&A Trends Report 2016 said that more than half of their transactions completed over the past two years had not generated expected returns, compared with 30% in 2015.

Integrating new acquisitions: an essential role for finance

Gaps in execution and integration of deals were the key reason why deals did not generate the expected value. Alongside topics like talent management and retention and commercial assessment of value drivers, companies are struggling with the integration of IP, systems, and technology. More than half (55%) of respondents highlight integration as a significant challenge.

Integrating even a small digital property requires a considerable amount of thinking. In a constantly changing environment, companies need to strike a careful balance between how rapidly and how thoroughly they integrate new businesses. In a digital world, however, there is a growing need to be successful at both dimensions simultaneously.

Based on research by strategy&, speed is key to integrating the acquired business quickly into the digital fabric. The old benchmarks for integration timelines – between four to twelve months – are no longer appropriate with smaller integrations and an expectation that synergies should be realized in a much shorter timeframe, often in less than 90 days. (See strategy&: How to run a hurry-up defense – Six key success factors for digital acquisition integration).

The key to accelerating ROI

Innovative finance organizations are learning to rapidly integrate new businesses into the digital fabric of their organization to dramatically accelerate the value of the transactions. Finance will have to bring clarity across several dimensions:

  • Giving access to the performance of the business portfolio
  • Modeling future investment scenarios
  • Rapid integration of acquired entities
  • Providing a holistic view of enterprise and ecosystem risk to prevent critical failures

This requires an open and adaptable finance platform. The most burning questions for a CFO after the acquisition are:

  • How does the investment pay off?
  • How quickly can the expected synergies be realized?
  • How is the performance of the overall business portfolio?
  • What do my consolidated figures look like?
  • How can I gain transparency in reporting?

Is your finance platform prepared and ready to answer these questions?

Sources:

To learn more about how finance executives can empower themselves with the right tools and play a vital role in business innovation and value chain, please visit the SAP finance page for  additional research and valuable insights.


Kerstin Heining

About Kerstin Heining

Kerstin Heining is a business enterprise principal consultant, working with SAP for 8 years. She supports companies in optimizing their finance organization and processes leveraging SAP solutions. Kerstin holds a degree in Industrial Engineering (Dipl. Wirtschaftsingenieur) from Karlsruhe Technical University, Germany.