Is Digital Transformation Relevant in M&A?
The last several years have seen record-breaking Mergers & Acquisitions (M&A) activity in process manufacturing markets making some wonder what type of growth opportunities the future will hold. Is value creation stimulated by the organic optimization of recent acquisitions or will process manufacturing organizations continue to seek new deals to increase shareholder value? Digital Transformation is a key consideration for either growth strategy. Connecting trading partners into a digital supply network plays a critical role in post M&A integration activity success.
The execution of a merger, divestiture or a joint venture process offers new transformative business model opportunities for organizations. Some organizations step back and rethink what they should be doing. They’re asking questions like: what our go-to-market strategy should be, what will be our product mix implications look like, and how we should align our integrated organizations to be best suited for growth. Strategic supply chain decisions need to be made about consolidating inter-business processes on how the new organization will sell, buy, and move its products with a larger set of supply chain trading partners.
Including enterprise-level digital transformation discussions before or during this time will add innumerable benefits. Leveraging a digital supply network’s capability across customer, supplier and logistics providers will connect these trading partners and transform complex information into meaningful and profitable results. There are several broader reasons why considering the deeper changes for digital in an M&A situation makes sense:
In a full digital transformation, the M&A focuses on acquisition, completely merging the people, processes and the technologies of the selling company with the buyer. The goal is for market and revenue growth by expansion. In this case, migrating the IT architecture of the acquired company seamlessly and securely is paramount, as this impacts all employees, partners, vendors, and customers from both companies. A robust Digital Supply Network will support this integration by providing frictionless business processes that supports this new business model where orders may be captured, shipped and sold from diverse sources and fulfilled from a centralized back-end.
When pursuing selective digital transformation, the M&A goal is to share competencies and synergies across organizations, and often results in some integration of IT infrastructure. This is more characteristic of a merger or joint venture. In this scenario, unlike a full acquisition, the whole is greater than the sum of its parts which may retain some autonomy. In this case the trading partners may be creating orders and shipments centralized or decentralized depending on market segments and fulfilled from a centralized or the joint venture solution back-end.
Moderate digital transformation is also the result of a joint venture. In this case, a company is often pursuing new regional or market presence. Minimal digital transformation occurs when a buying company acquires a selling company because it has the IT team and infrastructure they are seeking for their own business. In this scenario, there is little digital transformation. The selling company’s infrastructure is transferred over to the purchasing company. In this scenario the digital supply network remains the same with orders, shipments, and invoices from the trading partners having minimal impact from prior to the acquisition. Consolidation happens at the financial level.
So as your company contemplates an M&A plan, could it also be about a transformation that can drive faster growth using a Digital Supply Network?