Technology Can Improve Mergers and Acquisitions Success Rates
Blog: The Tibco Blog
$1.3 trillion. That was the value of acquisitions announced in 2017. Some of these deals sought to transform entire industries, such as Amazon’s acquisition of Whole Foods. Others seemed more incremental in intent, such as ExxonMobil’s acquisition of Bass family Permian Basin oil assets.
“This was the third year in a row with more than 50,000 M&A deals announced worldwide — a record run,” according to Professor Benjamin Gomes-Casseres’ What the Big Mergers of 2017 Tell Us About 2018 in Harvard Business Review.
And while this unremitting consolidation rhythm is expected to continue in 2018, according to a seminal HBR article by Professor Clayton Christensen and others, “study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%.”
Those are daunting numbers. So what is the nature of these failures?
- In some cases, they are due to faulty strategies that fail to transform the combined business model.
- In other cases, the problem is overly optimistic ROI projections that fail to materialize in the real world.
- And in yet other cases, integration execution under delivers the needed operational synergies.
Beating the Odds
With results that abysmal, one must ask whether we can do better?
Based on 30+ years of experience as a technology provider to large enterprises and as a three-time “acquired” executive, my answer is ABSOLUTELY YES!
As with many business opportunities today, success lies with properly leveraging available technology, particularly as it relates to the third cause of failure outlined above. Integration execution is a prime driver in successfully obtaining the benefits M&A deals aim to secure. Let’s explore a few 2017 acquisitions to see where current technology will help increase the odds in everyone’s favor.
Expanding the Channel
When Amazon bought Whole Foods in a deal valued at $13.7 billion, a key objective was to expand Amazon’s brick-and-mortar footprint and reciprocally bolster Whole Foods’ online presence. Under the covers, Amazon is facing two business-process integration challenges. The first is how can Amazon’s vaunted supply chain acumen, optimized for warehouse and direct-to-consumer operations, integrate with Whole Foods’ expert systems for physical stores with perishable inventories, myriad displays, storerooms, and food preparation sites? The second is how can business processes based on real shopping carts and checkout stands at Whole Foods align with Amazon’s virtual shopping carts and order systems?
Technology will address these issues. To achieve the flexibility required to quickly modify and extend newly integrated business processes, Amazon will use Business Process Management (BPM) software, microservices, and application programming interfaces (APIs). These tools, techniques, and interfaces break IT building blocks down into tiny independent functions that can be spun out based on need and highly automated for efficiency. And as a cloud provider, Amazon can leverage its AWS power to deploy enormously complex integrations that can span and bridge each parties’ distinct IT infrastructure. They don’t have to invent a new system. Technology allows them to unify those they already have on the fly.
When Cisco bought BroadSoft, cross-selling Cisco’s large enterprise offerings to BroadSoft’s small and medium customers and vice versa was a primary objective. Integrating the two customer bases is key to enabling cross-selling.
How can technology help? Data virtualization is an excellent way to quickly federate the Cisco and BroadSoft customer bases post-acquisition. Cisco’s sales and marketing teams can then use myriad analytics tools to identify and monitor the highest yield cross-selling prospects and programs. And master data management for aggregating, consolidating, and continuously distributing such data provides even deeper customer integration over time.
The strategic intent of Intel’s acquisition of Mobileye was to accelerate innovation and market success in the explosive automated driving systems market. To succeed, Intel must first integrate the two research and development (R&D) portfolios so that, post-acquisition, R&D leaders can compare, contrast, combine, and optimize these efforts.
Again, technology will be the key enabler. As with the enterprise cross-selling example, the first step is to use data virtualization to federate the two sets of R&D projects and thus provide an integrated view of the combined R&D portfolio. With this view, joint R&D leaders can use advanced analytics technology to surface patterns in execution, identify the most promising initiatives, and cut back on less-promising or duplicated efforts. Exploiting the speed and flexibility inherent in the cloud-based business process and data integration infrastructure can also help smooth Mobileye’s transition to Intel’s more established IT systems.
The Art of the Possible
These are but a few examples that demonstrate how current technology can flip the odds for favorable M&A outcomes. Where differing business process management, data systems, and IT infrastructures used to present ominous challenges to successful consolidation, we now have powerful tools and techniques that mitigate the complexity and difficulty inherent in bringing everything together to produce a functioning whole from disparate organizations. Executing an integration strategy that leverages these technologies better ensures that M&As both succeed and flourish.