This year’s ‘Australian M&A Outlook 2024’ — part of PwC’s annual global thought-leadership series that covers trends and solutions shaping dealmaking — is fascinating reading. It provides insights into the current and future M&A landscape for the Australian market, plus six industry sectors, which will be released soon.
Australia’s Mergers and Acquisitions (M&A) market looks poised for a cautious comeback. Our CEO survey found one-third of companies are planning to make three or more acquisitions in the next three years, and we’re already seeing early signs of an upswing in deal activity in Australia. Private capital players, in particular, are looking to deploy record levels of capital ($37bn). Inbound interest, too, is buoying activity, with investors from the US, Japan and Europe accounting for some of the largest transactions in Australia in 2023.
Organisations who seek to transact to transform — that is, use transactions as a catalyst for deeper business transformation — are accessing new capabilities and resources to fast-track growth and create significant value. Technology is a key enabler of this enterprise-wide reinvention, unlocking new sources of value and driving transformation faster than would otherwise be feasible.
How technology can drive successful M&A and drive reinvention
- Having a clear tech strategy to enable cost-effective adoption
Designing a clear technology strategy and an effective IT roadmap throughout the M&A process, it’s possible to more actively pursue your transaction goals — while minimising disruption to the business.
Right now, it’s all about cost-effective technology adoption which maximises your investments to date and identifying key deal risks early in the M&A process. From renegotiating with suppliers, to capitalising on the skills and capabilities you already have in your team, it’s about transacting to transform while leveraging the core technology foundations already in place. Strong project management and good communication are key to managing a (finite) number of people and resources. Also, remember to revisit your roadmap throughout the deal process to remain focused on the anticipated deal outcomes.
- Embracing generative AI
A number of studies suggest that GenAI can have a massive impact on operational efficiency, boosting productivity while improving the customer experience. This is because GenAI can scale far more quickly than conventional AI because it can be democratised into the business. In deals, operational spend like this doesn’t just boost cashflow – it can also have a positive effect on EBITDA multiples if it delivers market beating growth.
To truly benefit from GenAI, companies must make strategic, comprehensive upgrades to their capabilities, processes and technology, and these updates should happen sooner rather than later. It’s not a case of simply bolting on fresh tech, you need the right people and processes too. Here, it’s worth pointing out that while it is new and pivotal, GenAI is, in some ways, the next evolution of existing technology, and so it can work in tandem with your current tech investments. In fact, because it’s a large language model, GenAI can be used to unlock existing data and technology, for example analysing call transcripts.
GenAI starting steps include:
- Leveraging existing technology. For example, if you have Cloud ERP software (e.g. Dynamics) or a productivity suite (e.g. MS Office), you can leverage GenAI (e.g. Copilot) with minimal extra investment. GenAI links to your existing systems, so you can accelerate information retrieval and improve interaction with data sets, for faster, better decision-making.
- Centralising your data. The accuracy of AI-generated content hinges on the accuracy and quality of your data. Assess the quality, integrity, and accessibility of existing data assets, including data governance and guardrails. Also, ensure your organisation has the right technical infrastructure, tools and people (including the right skills and capabilities, and appropriate culture).
In short, ensure your organisation is prioritising tech diligence and data-related value creation opportunities.
Tips to avoid tech-related value blockers
PwC research found around one in five corporate leaders say their expectations weren’t met when using transactions to create value. Why? Unfortunately, one of the common value blockers can be technology.
One way value is quickly eroded is when IT strategy and business strategy are not on the same page. During a transaction, as we’ve mentioned, it’s vital to have a clear tech strategy or IT roadmap, and that roadmap must be closely aligned with the overall strategy of the organisation.
Start with your rationale, or the ‘why’ of the deal, and then translate that rationale into work packages for governing, managing and implementation. Ask: Is technology underpinning our M&A objectives? What are we trying to achieve with this transaction, and is our technology strategy supporting that objective? (For instance, if you’re acquiring a business to secure new technologies and accelerate digital transformation, do you have the skills and capabilities to leverage those technologies?)
Watch for potential tripwires when managing technology systems and data integration during a transaction including:
- Cultural resistance: When introducing technology changes, it’s common to encounter pushback from staff (especially when the changes impact employees’ daily routines, such as switching critical systems, for example Finance and HR).
- Too much change: It may be that comprehensive technology integration isn’t possible during a merger or acquisition and that smaller, more manageable change is your better option. Avoid being overwhelmed by setting clear statements (hypotheses) and targets which act as guardrails to direct focus and effort. Drive success by mapping out synergies and setting up a robust framework to monitor, track and govern achievement of these synergies so you know you’ve achieved what you set out to do.
- Buyer’s remorse: Do your due diligence and understand exactly what you’re buying from a technology perspective before executing a deal. Are the systems fit for purpose? Is the business governed by robust cyber arrangements? Is there a need for further investment in technology? This will help avoid integration headaches down the track. Ask: What are we getting? What are we not getting? And how does that fit with our existing systems? (Note: This includes technology capabilities as well as operating systems. For instance, do you have the specialist knowledge needed to sustain operations without disruption?)
- Data unprepared for GenAI: Our research found many business and technology leaders are unprepared for emerging technology such as GenAI. A lack of awareness around data maturity and data centralisation can prove a serious stumbling block. From data warehousing solutions using cloud technology for scalability to API-enabled data integration tools, there’s several aspects to data centralisation. Step one, however, is to promote a culture of data-centricity. Communicate the value of accurate, reliable data and make data management an organisation-wide responsibility. After all, one of the major upsides to GenAI is the democratisation of data.
- Strategic misalignment, or simply starting too late: Just as you can enhance diligence with AI solutions (e.g. document interrogation, data and analytics), effective due diligence will quickly distinguish between a target asset that’s undertaking true technology-driven transformation versus a business that’s just paying lip-service to data and technology.
For genuine and significant ROI, start with the end in mind. Align your technology strategy to your broader business strategy, and then implement this strategy early – not just as you’re preparing to buy or sell.
