The telltale signs of successful digital deals by Tanguy Catlin and Brett May published by McKinsey & Quarterly (6/2020).
“Digital M&A is challenging—and often a necessity for digital transformation. Sophisticated acquirers boost their odds by addressing the pain points that undermine outperformance.
The old saw that the best deals are the ones you don’t make doesn’t apply when it comes to digital acquisitions—you’ve got to make them, our research has consistently shown. You also need to do them well, and that can be challenging, because buying in the digital, analytics, and technology space—what we call “digital deals”—is different enough from undertaking conventional transactions to raise the odds of costly lapses.
In this article, we show how to overcome those challenges, and join the ranks of companies that have achieved exceptional performance by energizing their digitaltransformation efforts with successful mergers and acquisitions (M&A). Digital leaders pursue M&A about twice as hard as everyone else. They spend three times more on M&A (27 percent of their annual revenues, compared with 9 percent by others) and devote upward of 1.5 times more of their M&A activity to the acquisition of digital capabilities and digital businesses (64 percent, compared with 39 percent for their peers), and ensure that software acquisitions are among their highest priorities. And that was before the COVID-19 crisis, which is making it even more important for many companies to rewire themselves in ways that sometimes necessitate acquiring digital capabilities.
High-performing acquirers approach M&A in a programmatic way, from strategy to deal execution and on through integration. You can often spot their work by what they don’t do: make unforced errors at key points in the deal life cycle. Sometimes, an acquiring company stumbles before it has even started, not thinking through its strategy or what types of assets and capabilities it needs to acquire. In other cases, the acquirer doesn’t sufficiently understand the technology it’s purchasing, or how to value it. And even when acquirers navigate the strategy and execution phases smoothly, they can still wind up foundering during integration.
Sophisticated acquirers know the common trouble spots. Three categories of challenges—across strategy, execution, and integration—are particularly worthy of attention. In this article, we address these challenges in turn, so that when your organization moves forward with its digital deals, as it must, it can avoid common errors before they happen (Exhibit 1)…”
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