The shifting tides in corporate development, mergers, and acquisitions have given way to an entirely new way of conceptualizing and enacting growth strategies. As organizations navigate an increasingly disrupted business landscape, the drivers impacting decision-making in corporate development have shifted rapidly in the past few years.
With three quarters on the books, 2018 has already shown $3 trillion in deal activity with more to come. By year’s end, it’s likely we’ll achieve M&A numbers not yet seen since 2007, a record-breaking year for deal activity. The increased activity is the result of a variety of contributing factors – tax repatriation, increases in consumer confidence, relative economic stability, etc. Though the macro trends creating this activity should be monitored by corporate leaders for the impacts to their own businesses, it’s the types of deals that are most impactful to growth strategies now and in the years to come.
Historically, M&A has been a relatively straightforward growth tactic. In order to penetrate a new market or consolidate market share, your business would acquire a competitor or like-business within industry. This is, of course, a simplistic view as there have been countless examples of M&A that falls outside these bounds. Primarily though, the driver has typically always been the direct increase of growth numbers – size, revenue, markets, etc.
With this approach, there have been well-documented challenges. Organizational incompatibilities in processes, systems, cultures, values, and more have created an environment where more deals are failing than succeeding. Over-valued acquisitions have also created nearly impossible-to-attain ROI.
Corporate Development Now and Then
Recently, however, the types of deals have changed, bringing to light the new motivations behind corporate development. A quick look at some deals in 2017 against those in 2007 showcases the trend:
- May 4, 2017: Multinational home appliance maker Whirlpool acquires Yummly, a mobile app and website platform centered on personalized recipe recommendations.
- August 28, 2017: E-commerce giant Amazon purchases organic grocer Whole Foods at $13.7B
- November 8, 2017: Software development and managed services business CompuCom is purchased by office goods supplier Office Depot for $1B.
- November 16, 2017: Premium kitchenware and home goods retailer Williams-Sonoma acquires 3-D imaging and augmented reality platform Outward for $112M.
- June 7, 2007: Worldwide soft drink maker Coca-Cola acquires enhanced water brand Energy Brands Inc. for $4.1B.
- June 19, 2007: English biopharmaceutical manufacturer AstraZeneca buys US-based pharmaceutical company MedImmune for $15.6B.
- November 26, 2007: International eyewear conglomerate Luxxotica purchases sunglasses and apparel maker Oakley for $2.1B.
- November 29, 2007: Multinational diner-style restaurant IHOP acquires franchise restaurant Applebee’s for $1.9B.
What’s readily clear is the increasingly cross-industry nature of more recent M&A. Businesses are now looking to acquire capabilities, especially technical capabilities, instead of size or reach. As consumers and patients continue to demand more and more from the brands they purchase, companies are responding by creating more holistic products, services, and experiences that truly put the consumer at the center. This new approach enables transformative change for businesses to better serve their key constituents with new and enhanced offerings. With this different approach to corporate development, businesses must also execute new means for integrating with acquired entities and assimilating the critical capabilities they aim to have within their own business.
Evolving Due Diligence
As with any deal, success in the new era of M&A will be defined at the earliest stage, in due diligence. The same key areas will remain necessary to evaluate an acquisition in this phase – legal, financial, regulatory, etc. However, in order to ensure long-term success and accommodate the practical repercussions of the acquisition, business leaders should also incorporate expertise in the function and/or industry in which they are acquiring.
Bringing this kind of industry-focused proficiency to the table early and giving visibility into the deal structure gives leadership a better sense for the practical implications of the arrangement and how the technologies, business processes, and responsibilities can best be positioned in the new organization. This is especially critical as businesses continue to seek opportunities outside of their own core industries. Where an industry expert has been a smaller component of due diligence before, this role must now be elevated to ensure a more sustainable integration and long-term view to the operational stability of the newly-formed business.
To learn more about Clarkston’s perspectives or experience in corporate development, M&A, or due diligence, subscribe to our insights below or contact us today.