A new playbook for today’s M&A deals

In brief

• Companies increasingly use mergers and acquisitions (M&A) to innovate across industry boundaries, pre-empt disruptors and grow.
• These growth-oriented M&A deals have distinguishing characteristics and present unfamiliar challenges.
• To capture the tremendous value potential these deals offer, companies need to update their M&A playbook.
• Accenture research suggests that four behaviors are critical to the success of today’s growth-focused deals.
  

Mergers and acquisitions (M&A) have long served companies in pursuit of competitiveness. They've served in capturing economies of scale, securing supply chains, and building presence in adjacent industries or strategic end markets. The playbooks for these types of M&A deals are well understood. Accenture’s latest research into the evolution of M&A reveals, however, that these deal types are becoming eclipsed by ones primarily oriented toward growth.

Which deal pathways are on the rise?

Inorganic growth should be clearly targeted and focused on creating value. Accenture’s research of M&A approaches sheds light on five distinct pathways that companies pursue through their deals:

• Builder: Build onto a portfolio of products and services, through full integration of the target.
• Ecosystem: Extend the business outside the core, including experimenting in new areas of growth.
• Architect: Gain long-term capabilities that affect existing and future revenue.
• Controller: Seek to control another entity for supply or finances, often at arm’s length.
• Protector: Defend the current portfolio through full integration.

The builder pathway remains the most frequently used. However, we observed a sharp rise in ecosystem deals, in which acquiring companies target firms outside of their core business. The aim: gain access to customer-facing technologies and the ecosystems that support them.

Accenture research reveals an increased focus on technology. A decade ago, the desire to acquire innovative technology was the main motivation for fewer than one in four acquisitions. By 2020-21, that figure had risen to 36% of M&A deals. The increase is most visible in industries in which new technologies are changing how companies interact with and serve customers.

% of technology-driven deals as part of total deals in 2020-21, and their increase in prominence—as a multiplication—in the past ten years.

What makes ecosystem deals different?

Ecosystem and platform deals have tremendous value potential, but their unique characteristics present unfamiliar challenges. For example, “string of pearls” deals are increasingly common. A series of smaller deals, often in rapid succession, is necessary to achieve the strategic goal.

We find these deals to have other distinguishing traits, too. Target companies are more likely to be privately held, which means they can be harder for outsiders to scrutinize. Those companies tend to have entrepreneurial cultures and may look to move at a faster pace. And they are at greater risk of assimilation, where a successful organizational culture can get lost as they integrate with the acquiring firm.

What behaviors help companies realize deal growth potentials?

As more acquirers pursue M&A deals geared toward new growth, they simultaneously lack the expertise to assess a target’s capabilities and market potential, as well as the ability to realize the full value potential from their deals. Leveraging routine playbooks, many companies are struggling to realize the expected value of their M&A activities. In 2021, an Accenture study of 800 global M&A transactions found that just 27% resulted in both operating margin improvement and revenue growth.

Our research suggests that four behaviors are crucial to the success of today’s growth-focused deals.

1. Invest in an “always on” M&A capability

Small deals in rapid succession require companies to invest in an always-on M&A capability that allows them to handle and integrate more acquisitions in a shorter time-frame. Creating an always-on capability requires building an operating model specifically designed for M&A. The model should have a comprehensive M&A framework that offers the flexibility to combine different operating models, ways of working, cultures and teams. Read more on Accenture’s acquisitions advantage.

2. Accelerate speed to value through technology

Technology is a cornerstone for any merger or acquisition. As a result, many organizations are turning to data analytics and cloud technologies to both smooth and speed dealmaking and integration. An Accenture study found that, in 80% of transactions that beat their sector averages, dealmakers placed significant emphasis on technology. Read why tech is so important to the M&A genome.

3. Consider an Agile integration approach to focus on collaboration and innovation

Traditional approaches to M&A integration tend to freeze innovation. Flexible, highly iterative, and with fact decision making as a key characteristic, an Agile integration method enables continuous innovation to take place during the integration. With activities tackled in short sprints, the approach enables teams to fail, learn and move forward at speed as necessary, also reducing risks by identifying issues early on. Read more on M&A integration: The Agile advantage.

4. Design organizational structures and roles to create the space for talent and ecosystems to flourish

Successful growth-focused deals prioritize structures and roles that allow their talent to flourish. Success can be found by seeking ways to protect and nurture the capabilities and brand power of acquired talent while simultaneously leveraging the breadth and scale of existing operations to catapult growth. Does your talent approach fit your deal. Read more.

Why rewrite your M&A playbook?

As more firms turn towards growth-oriented deals, relatively few are adapting their M&A playbooks. By mastering four key behaviors described in our report, firms can set themselves up to gain the full value potential from their deals.

Industry perspectives

• The changing face of M&A in the chemical industry. Accenture explores chemical industry M&A as companies look to strengthen portfolios, implement new business models and meet net-zero goals. Read more.

• Four inorganic growth pathways for oil and gas. A review of energy sector M&A approaches over the past decade shed light on inorganic growth pathways energy companies should consider. Read more.

• Scientific innovations for more sustainable growth. Our recent analysis proves that sustainable growth requires a new approach. We have identified three key actions that companies should take. Read more.