Change

Chapter 7Mergers and Acquisitions That Create Real Value

A fifth way that enterprises today try to deal with a more rapidly changing and often perplexing world is through the acquisition of a solution to some perceived change challenge. Instead of creating something new (a product, a marketing approach, a technology, etc.) via a revised strategy, trying to jump into the digital future in a big way, restructuring, or cultural renewal, they purchase or merge with an entity that already has what they think they need to better compete or better fulfill their mission.

As the rate of change has accelerated over the past three decades in a more complicated world, so has M&A activity, as we would logically expect. A good estimate is that the value of deals during this period has grown four-fold.

Often, M&A is driven by a simple economic evaluation. In light of our assessment of the way the world is moving, we conclude we need X: a revenue boost, less expense and higher margins, a particular technology or product or market, certain talent, and so on. Building that reality through internal changes alone will likely cost such and such, and that could be even higher because of internal disputes, uncertainties, lack of expertise in some new areas, and bureaucracy. We can buy the capability for less, guaranteed. So we buy.

Even more often these days, time is the issue. Sooner or later we can change ourselves so that we will have a capability or cost structure or better patents than our competition ...