Innovation led growth – the future of M&A
As per the Global Capital Confidence Barometer (as constructed by the Transaction Advisory Services at EY) 52% of the companies globally (out of 2,500 surveyed) are looking to acquire in the current 12 months (April 2018 to April 2019). That is quite a high level of appetite but the question to ask is what is fuelling this growth and what is everyone looking to buy?
The demand drivers for increased interest in acquisitions are:
Strong macro-economic cues and fundamentals that support growth both domestically and internationally
Most boardrooms are abuzz with conversations about portfolio transformations, capital investment and preservation cannot follow the same old investment strategies (as per the CCB report by EY, 70% of the companies are looking at portfolio transformation as the most prominent strategic initiative driven from the top)
Shareholders are now scared being disrupted by new age technologies and businesses and have become activists for changing business models
But what has changed that is leading to this rush to acquire techno-enabled companies? This can be understood if we look at the below three aspects of how business is changing the world over and as always it starts with the consumer and the change in his or her preferences.
Consumer behaviour shifts (Fuelling growth through innovation, Deloitte M&A Index):
Peers vs. corporates – More and more consumers today do not trust large corporates, they prefer to deal with peers, who can understand them and their problems better and offer solutions that are more suited.
Equity of access vs. ownership – Nobody wants to own assets, they want to use them and pay for only the time they use them for. Uber, Careem and Airbnb have all shown this.
Corporate collaboration and advocacy – All corporates are looking for advocacy from existing users and loyalists. Peer reviews and bloggers’ endorsements matter in making the buying decision, the customers have become collaborators to corporates.
This brings us to how to effectively execute this growth strategy to capture the growth potential? And this facet is particularly important for corporates in the Middle East and specifically in Bahrain, who have until recently let innovation happen to them. As per Deloitte the strategic choices to capture innovation led growth are as follows:
Invest in innovation – one effective way would be to develop corporate venture investing as a competence thereby helping identify, incubate, accelerate and invest in growth opportunities. A good example of this is what BFG International has done by setting up M2G innovation (an in-house accelerator to promote invention and innovation led companies).
Collaborate with partners – this is another strategy wherein one could look at collaborating with a range of partners who can catalyse the innovation journey within the corporate, such as Credimax collaborating with the Bahrain Fintech Bay. The collaboration could be with start-ups, international firms, accelerators and even cross-industry participants.
Acquire innovative companies – While cultural integration will always be key, developing an effective M&A strategy with focus on innovative companies will go a long way in unlocking capabilities and acquiring new products, services as well revenue sources.
Creating a culture of innovation, enabling innovation led growth and developing as well as executing innovation focused M&A strategies is what we at Falak are very good at. Being a strategy firm, with deep routed experience in executing transactions and with specific platforms such as Falak Innovation and Falak Digital we are a comprehensive advisory firm well geared to help you on your growth journey. Contact us for more information.