Mergers and Acquisitions (M&A) is a popular method for companies to grow inorganically. However, it does not work on a one-size-fits-all principle as it is especially unique when acquiring digital companies. One such difference may be observed at the financing stage. As a lot of digital companies are valued in terms of future expansion or goodwill rather than existing or physical assets, overvaluation is a common occurrence. This could lead to future write-offs, thus the acquisition must signal a change in the corporate strategy where this deal is part of a series of upcoming ones to propel the company’s push towards digitization. Also, the financing must rarely be fully by cash, but other modes of payment ought to be considered. Another change is the due diligence process. In deals with traditional companies, the valuation is based on current value, but in digital companies, a futuristic dimension needs to be applied. Tools exist to ease this process such as CB Insights, Quad Analytix and Sysomos which provide cutting-edge business intelligence on various related aspects. Another challenge is integrating this acquisition without killing it. A thorough investigation needs to be carried out on which aspects the new entity will complement the existing establishment. When the acquisition is only intended to enhance a particular function, then incremental alignment works. But for disruptive gains, a complete streamlining is necessary.


Uploaded Date:20 July 2017

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