How to be a savvy technology M&A dealmaker

The EY-Parthenon Technology Corporate Development Survey confirms seven key traits of companies that succeed with mergers and acquisitions (M&A).

In brief

• Key findings emphasize how technology companies can get ahead of the competition.
• Businesses that embrace wider sourcing, diverse KPIs and methodical integration with experienced oversight are more successful with technology M&A.
• Carrying out an M&A stress test can help companies get ready for the next big deal.

Current market conditions, characterized by a difficult purchasing climate, regulatory hurdles and geopolitical uncertainties, present significant barriers to corporate growth. Consequently, pursuing M&A is even more important for technology companies seeking to expand.

Figure 1: How many leadership members does the integration monitoring report to? (n=124)

2) Structured integration processes

Tech businesses that have structured integration processes in place are about 50% more likely to have successful deals. By institutionalizing a consistent framework for deal execution and integration, companies can minimize risks, enhance collaboration and realize smoother transitions, leading to higher overall success rates in their deals. Additionally, as these processes become more institutionalized, they contribute to the fabric of the culture that supports and underpins technology M&A activity.

Figure 2: What percentage of deals completed over the past two years have been successful?

3) Astute approach to KPIs

Leading tech dealmakers have a culture of thoughtful selection and tracking of relevant KPIs. They also tend to go beyond financial KPIs by tracking additional metrics, including culture assessment/personnel retainment, customer net promoter score (NPS) and/or product roadmap. Achieving increased talent retention is especially critical to preserve know-how and lay a foundation for long-term success.

By closely monitoring KPIs, organizations can make better-informed decisions, identify potential challenges early on and achieve smoother transitions. All of this contributes to heightened overall deal success because these businesses have a more comprehensive understanding of the target company’s internal and external environments rather than just financial metrics.

Figure 3: Which of the following metrics are tracked to measure post-deal success?

4) Advanced preparation

Successful tech companies are 50% more prepared to tackle complex deals when compared to companies with lower rates of deal success. However, all companies report a low level of readiness across business functions except corporate development teams. The larger the transaction, the more critical the involvement and preparation of the broader set of stakeholders is.

Therefore, it’s important that companies planning strategic or transformational deals consider undergoing an M&A stress test, which can help assess their functional readiness and identify areas to remediate in advance of a major deal. This is especially important for companies that heavily rely on a tuck-in approach or have undergone major changes or disruptions. However, it can be equally valuable for savvy players that look to refine their approach even further.

Figure 4: Which of the following functions do you think are prepared to execute a transformational or highly complex deal (including diligence and integration)?

Below are the following traits of tech corporate development teams that are more likely to succeed in M&A:

5) Sourcing deals from BUs and achieving higher throughput

Leading tech corporate development teams source about the same number of deals from the CEO, CFO, COO and corporate strategy teams. And successful teams source 175% more deals from the business units (BUs) and are more active, originating on average 70% more deals.

Figure 5: What percentage of deals are sourced by each of the following groups on an annual basis? (n=124)

6) Longer tenures and higher muscle memory for functional teams

Tech companies with teams that have longer average tenure see about 50% greater likelihood of deal success than those with the shortest average tenure. When companies have a high level of shared experience and knowledge across functional teams there is greater collective muscle memory.

The combination of building deeper company and industry knowledge, a wider array of established relationships throughout the market, more refined processes and greater chemistry stem from a broader approach in which individuals are all on the same page. To achieve longer tenure, it’s critical for companies to prioritize retention. Successful companies generally provide their corporate development teams with substantial incentive-based compensation and connect compensation to individual performance as opposed to simply corporate performance.

Figure 6: What is the average tenure on your team?

7) Extended accountability

Tech corporate development teams that own more of the end-to-end deal process are approximately 70% more likely to achieve greater deal success than teams that own less.

Empowering corporate development teams to own more of the end-to-end M&A process – such as the deal model, operating model and integration – increases their accountability and allows them to act more effectively and efficiently.

A typical hand-off model where the corporate development team takes a deal through sign and relinquishes accountability for what happens afterwards may work less effectively because it disconnects strategic assumptions from operational execution. Additionally, owning the operating model pre-sign is an effective way to anticipate and plan early for implementation hurdles. The outcomes are increased strategic alignment, smoother execution and the ability to respond more effectively to challenges, ultimately driving better outcomes.

Figure 7: Does the corporate development team own the deal evaluation model and go-forward operating model pre-signing?

Figure 8: Which function is primarily responsible for integration and conducting post-closing reviews?

Achieving successful technology M&A

Tech businesses are facing pressures to find a way to grow despite the high cost of capital and move quickly to achieve deal value. Our survey results show that savvy technology M&A players demonstrate the seven winning characteristics outlined above to spur lucrative deals —traits that businesses can implement for success. When less successful dealmakers embrace these new M&A patterns, key actions become more programmatic. This, in turn, can drive a 25%–60% greater deal throughput and a success loop, leading to enhanced growth.

Thanks to Kasia Tadajewska, Trang Nguyen and Phil Nowakowski for their contributions to this article.