Our second Digital Deal Economy, a survey of more than 900 executives, finds companies increasingly embracing the digital imperative. No surprise there, given digital technologies and applications are continuously reinventing and reshaping industry landscapes and business models.
In our survey, 90% of companies are elevating digital priorities in their strategic planning over the next two years. But, many are challenged to build an effective approach to fully realize their digital potential.
A road map for change
On the basis of our research, there are four priority areas across the transaction lifecycle, where organizations should focus efforts to transform to become leaders:
- Strategy and ecosystem
Understanding the evolving external environment and aligning strategic digital goals is the primary component for success. Acquisitions are clearly an important part of the mix, and 74% of our respondents are looking outside their own companies for digital growth.
Organizations are still placing significant reliance on corporate M&A departments, which often specialize in identifying and pursuing traditional targets in the company’s “home” sector. However, finding targets for digital M&A requires a different approach. Building new digital ecosystems is critical to enable companies to identify new partners and targets
- Capital and portfolio review
Our survey respondents clearly understand there is a cost associated with digital transformation. However, many are challenged to get their capital allocation balance right. When asked if they have a coherent and aligned “buy” and “build” approach to digital, only 48% agreed.
While organizations may be trying to respond to fast-changing technological landscape, it is important not to make hasty decisions or prematurely react to short-term forces. Continuously reviewing the business portfolio to sustain ambitious acquisition and investment goals is key to future-proofing the business.
- Deal process
Our findings suggest an overall level of confidence around the processes companies are using to evaluate targets. However, looking at the deeper analysis of the new types of diligence, it is apparent that few are actually employing innovative methods.
For example, only 38% are applying intellectual property analysis and just 22% are undertaking cyber diligence. Rebooting M&A capabilities and processes to meet the specific deal demands of the digital environment is key to success.
Many organizations continue to use the approaches they employ for post-merger integration of brick-and-mortar assets for digital transactions. However, digital M&A requires a much more nuanced approach.
Companies may also be targeting a number of digital assets at the same time, so the ability to integrate multiple digital assets simultaneously will be key to delivering potential. Realizing maximum value requires strategic integration approaches tailored to digital transactions.
To succeed in the new digital world is not just a one-off sprint. It is a continuous race to stay ahead of changing customer demands amid ever morphing landscapes. The forces and technologies driving these changes are also those that can be best harnessed to navigate them. Becoming leaders in the transformational age requires a digital-centric approach to capital strategy, dealmaking and processes.
Your digital tomorrow will be impacted by your strategic decisions today. It’s now time to embrace the digital M&A mindset.
Read the full survey here.
EY legal services contact:
Jean-Christophe Sabourin, Global Transaction Law Leader
Global Transaction Law Markets Leader.