Why the future of dealmaking is digital

For the 2018 Milken Institute Global Conference, we asked speakers to identify one event that has changed their industry and the world in recent memory. See their insights and share your thoughts using #MIGlobal. See more coverage on the Milken Institute LinkedIn page.

Digital technology is changing how the world conducts business. It is also changing how businesses see the world. Technology allows businesses to create new products and services, to operate more efficiently and to build deep and personal relationships with customers across the global marketplace. At the same time, however, technology is overturning long-cherished business models, launching agile new competitors, equipping existing competitors with potent new tools. In short, it is forcing businesses to reinvent themselves at a speed they have never had to handle before.

With businesses under pressure to both seize growth opportunities and futureproof themselves at a rapid rate, they are increasingly turning to acquisitions to secure the vital digital capabilities that they need to innovate and grow. Our most recent Global Capital Confidence Barometer found that 52% of global executives plan to acquire in the next 12 months. This is undoubtedly linked to the fact that portfolio transformation is top of their agenda – they are identifying the strategic gaps in their portfolios and then looking to buy in or build the emerging technologies that will enable them to boost earnings and productivity. For example, in the past 12 months alone, non-tech companies have acquired US$189b worth of technology firms – including many household names – through more than 2,500 deals, according to the latest Dealogic data. If you add in deals involving the acquisition of technology intellectual property (IP) but not directly involving technology companies, this number more than doubles.

So businesses are out shopping for the most exciting start-ups in their sector and possibly in sectors that they may not have previously operated in before. The digital revolution has already provided many examples of how technology can enable businesses to transcend sectors. Industries have seen fluidity across everything from ride sharing, electric car making and mobile handset manufacturing, to energy storage and more. Digital mergers and acquisitions (M&A) is largely driven by the desire to acquire tech capabilities – and also by the urge to ward off threats. Strategically speaking, there is something to be said for acquiring tomorrow’s competition today.

Yet, digital M&A is not only about acquiring digital capabilities; it goes deeper than that. Digital M&A is also about drawing on digital capabilities during the course of the actual acquisition process. Some leading companies are applying technology to dealmaking to make sure that they are buying or selling the right business, with the right expertise, for the right price. Analytics, artificial intelligence, data visualization, robotic process automation and scenario planning can all form part of the deal-vetting process, as can cyber and social media due diligence. The opportunities and threats are clear. Companies that are not already using these technologies to more fully inform their dealmaking processes run the risk of losing out to rivals who are.

With the future approaching faster than most of us anticipated, more and more dealmakers are focusing on technology to stay competitive. The same goes for us as advisors. We are investing in our own capabilities across a host of technologies from analytics and artificial intelligence through to cybersecurity, customer experience and the Internet of Things. We are also constantly scanning the horizon to see what is coming down the line. If we are to continue to give our clients the support they deserve, it is not enough to just transform ourselves today. We must also stand ready to embrace the technologies that do not yet exist.

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The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.