ShortCut: The art of digital M&A

How to enable value-add from digital assets



How to enable value-add from digital assets
The past year brutally exposed companies that are still struggling with their digitalization activities and again highlighted the urgency to build up digital capabilities rapidly . According to recent market insights and experience from client projects 1 , companies that already started transforming their business model and business operations as well as underlying technologies and tools were able to react more quickly to the radically changed environment , and therefore managed to ensure business continuity . Digital leaders with mature digital service offerings and operations were even able to leverage this competitive advantage to outperform their industry competitors . However , most companies still do not have a sufficient level of digital maturity , which consequently increases their vulnerability and puts significant pressure on traditional businesses . Continuing the waiting game will often lead to costly and timeconsuming reactive measures , and will only worsen their handicap while the “ digital gap ” is further widening .
Recognize and identify opportunities from digital M & A
Internally driven transformations can sometimes be challenging , due to a lack of resources and know-how . We often see a silo mentality across units , as well as the missing digital mindset and ability to innovate effectively . Venture building is another approach to leverage a company ’ s capabilities to drive digitalization and innovation outside of core business – most often in a greenfield approach and decoupled from the parent company .
As an alternative , a dedicated adjusted M & A approach can be an effective way to address a company ’ s lack of digital readiness . External investments are great substitutes or add-ons to accelerate the digitalization journey . Recent market data confirms this trend , as we can see a considerable growth in digital deals . 2 Currently numerous transactions in the market are solely aimed at accelerating the companies ’ digitalization activities , which can range from e . g . strengthening AI- based automation efforts up to building new digital business models . A strong understanding of one ’ s own transformation needs is required to select , filter and funnel potential opportunities .
Evaluate attractiveness and potential value of the digital asset
But when considering external investments in digital capabilities , traditional valuation methods – such as the asset , market or income approach – often fail since valuations based on balance sheet data or established financial and performance KPIs don ’ t show the full picture .
Attractive digital assets focusing on innovative business models , emerging technologies and / or other digital capabilities usually operate in early growth markets and they are hard to evaluate due to their novelty , intangible nature and low comparability . Therefore , new " forwardlooking " approaches must be applied , which differ from traditional valuation and due diligence methods – and rather follow an evaluation based on the statement :



attractiveness and potential value of digital asset


RECOGNIZE & IDENTIFY opportunities from digital M & A
digital asset with tailored PMI approach
How can my own business or that of the acquired asset be improved by the acquisition , and in which scenarios ?
The rationale of acquiring a digital asset can be manifold and includes e . g . new digital products or services , business enabling software and tools or digital talent . These can enable the company to stay ahead of the curve , create new revenue sources and / or help to optimize costs . Depending on the type of asset , the real value-add needs to be analyzed based on its potential impact on the business and
1 ) goetzpartners insights ); Gartner ; 2 ) Mergermarket , Freshfields Bruckhaus Deringer