Transformational M&A and deals can provide access to new capabilities and talent that are critical to creating value over a shorter time frame than organic growth. Having a process to determine whether your business can benefit from strategic acquisitions, joint ventures (JVs), spinoffs and divestitures is a key to success.
In recent years, many companies have turned to M&A to address different goals over both short and extended time horizons. Goals have included moving closer to customers, leaving challenged sectors and speeding up digital transformation. Whatever the objective, the market can be impatient and one of the fastest ways to accelerate transformation is through M&A.
Not every business opts to transform through an outright acquisition. Some prefer to strike a joint venture or to divest a business unit instead.
Joint ventures can be attractive alternatives because they remove the pressure that most public companies face in making deals work on a cost/synergy basis. Many JVs take a page from private equity firms, which look ahead to an exit strategy of assuming control or spinning off the unit within a few years.
Divestitures can help executives focus their attention and resources on more profitable units. They also allow companies to group together business units that share similar growth stories. And they can generate capital that can then be redeployed into the core business.
Recent high-profile examples of transformative M&A deals include:
In a series of relatively small deals, these energy titans have been preparing for a seemingly inevitable transition to a net-zero emission future. Neither company is abandoning its current hydrocarbon emphasis in the short term, but both are accumulating assets, expertise and talent to prepare for a transformational shift later on. Shell recently bought solar and energy storage developer Savion and invested in solar power operator Silicon Ranch. BP bought Chargemaster, Britain’s largest electric vehicle charging company, for $170 million, and invested $200 million in solar development company Lightsource.
In 2020, Costco acquired Innovel Solutions for $1 billion, to increase its penetration into the large appliance and furniture products market. The deal, Costco’s biggest acquisition in nearly two decades, beefed up the company’s ability to deliver bulky products in the final mile.
Walt Disney’s $71 billion acquisition of 21st Century Fox from Fox Corp. gave Disney a huge number of film assets, better positioning it to compete with other streaming services. From Fox’s perspective, the divestiture provided focus through transition service agreements (to support current operations) and gave the company the capital it required to replatform its core technology and operations. Fox’s divestiture also enabled a focus on growth aligned with the strategy of live content and digital excellence (e.g. products and ad-based video on demand/streaming).
Despite all the potential benefits, M&A doesn’t often end up creating as much value as many executives hope. PwC research has shown that 53% of corporate acquirers underperformed their industry peers. There are several reasons for this, including mismatched company cultures, technology troubles and losing key talent. Another contributor is a failure to achieve go-to-market goals.
To determine whether your company is positioned for such a move, consider a process that includes addressing the following questions: