Success factors to acquire a Digital Unicorn in 2019

Digital unicorn

In this blog, we shall look at the digital unicorn and key reasons, companies look to do M&A deals and evaluate the chances for its successes.
M&A transactions are incredibly complicated.Less than 25% of the M&A transactions have seen successes.With the change in business models and advent of digital, executing M&A transactions are going to be even more tougher.
One thing is clear in the last couple of years in M&A transactions – If one does not change the way how M&A is designed and executed, the success rate of M&A would still shrink to less than 5%.

M&A by Digital unicorn

  • In this age of digital, every company is involved in Digital Transformation initiatives.Among these companies, only 28% of them have achieved success while the remaining 72% are still struggling to reach their goals.
  • The successful companies (28%) have mastered on what it takes to transform themselves into digital platforms and not just digitally wrapped companies.Hence these companies would continue to be leaders in their respective industries in near future.
  • Now the question arises for the remaining 78%, who are struggling to achieve their digital transformation initiatives.What should their next steps be to achieve successes?
  • For the 78% companies, M&A can be a route to success.M&A can be successful when one does not use the variables of the past to define success for the future.

Factors that can drive success in Digital M&A

The 72% of the companies that want to digitally transform and are looking at M&A to achieve success needs to primarily understand how the 28% who have succeeded, have managed to shift their Digital DNA to thrive.
Some of the key factors to focus on M&A process when evaluating targets are:

  1. Digital platforms invest in AI in their businesses.The leaders in Digital platforms are three times more likely to heavily invest in AI, compared to other companies.Hence companies who wish to become Digital platforms through M&A need to identify potential AI targets for acquisitions.
  2. Financial success is no longer the only key metric for success in Digital M&A.Companies need to have success equally in Process, Culture, Strategy and in Brand.Hence the Due Diligence needs to review these parameters when assessing the target company.
  3. Digital platform companies use data in flexible and in much better ways compared to other companies.Hence these companies are able to pull higher value from their data than others.
  4. Digital platform companies handle uncertainty better and have better organization digital readiness.Hence while doing due diligence, the acquirers need to find an approach to measure the digital readiness of the target company.
  5. The executive teams of the Digital platform companies invest heavy time and efforts in the process of replatforming every activity in their organization.Hence during the due diligence, the acquirer needs to measure the founders involvement in the digital success of the target organization.
  6. A Digital platform company leverages its customers ideas and experiences.These ideas are shared continuously across the organization.During the due diligence, the acquirer needs to measure the customer engagement in the target Digital platform.

Digital unicorn needs new rules

  • Digital Transformation and intent to move towards a Digital platform company is incredibly complex and high risk activity.
  • Companies who have achieved success are mostly unicorns.These companies have taken non-digital assets and turned them into successful digital platforms.These firms cannot be bought like in a traditional M&A process because the combined value of a Digital platform company is more than the individual parts.
  • The value of a Digital Transformation business is assessed by its speed to resolve issues, ability to experiment and learn and how effectively they collaborate with other partners.
  • A true digital transformation company maps all customer experiences, derive more value/insights from its data and have friendly product design.

Acquiring a Digital Unicorn

  • If a company is looking to acquire a Digital unicorn to achieve its Digital transformation initiatives, it needs to be extremely conscious to adopt target digital M&A in how to think, design and act going forward.
  • One can’t buy Digital success.Successful Digital transformation companies do not rely on external consultants and suppliers to do the heavy lifting.

Acquiring a digital unicorn requires new models

  • Acquiring a digital unicorn going to be very difficult if one is looking to apply old world models to the digital future.
  • Digital replatforming needs a whole new model to assess where and how a company adds value.

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