In 2018, M&A brought the second highest deal flow in business history with over 13,500 deals globally totaling over $2.7 trillion in value, second only to pre-recession records in 2007. Add to this the record number and pace of strategic divestitures that position both parent company and NewCo to be more competitive, with classic companies like GE, DowDuPont and United Technologies, and even tech companies like Google sharpening their portfolios.
Not surprisingly, nearly all of our clients have a clear Mergers, Acquisitions and Divestitures (MA&D) roadmap. While the size and strategy of the deal differs – from creating scale economies, enhancing focus on core growth businesses, entering new markets, to adding adjacent offerings or capabilities – the rate at which markets are evolving and industries are being disrupted demands an active and sophisticated MA&D strategy.
While these transactions are being planned and implemented, many of these companies are simultaneously driving significant digital transformation programs —building toward what we call the evolved enterprise, companies who are rising to meet the digital challenge.
Neither of these alone are exactly news.
However, what is interesting is what happens when these two roadmaps – MA&D and digital transformation – intersect. Increasingly, we see companies use MA&D moments to accelerate progress toward becoming an evolved enterprise, creating the “but wait, there’s more” business case that goes beyond just capturing near-term value, cost savings, and boosting inorganic growth, to also act as the catalyst for broader transformational change.
How Does M&A Help Companies Become Evolved Enterprises?
Here are a few ways that companies utilize MA&D moments to gain momentum, digitally transform and ultimately, become evolved enterprises.
Creating State-of-the-Art Operating Models to Drive Uncommon Growth:
A digital health pioneer started investing and acquiring different capabilities in 2015 to form an ecosystem that combines health data with sequencing and A.I. technology to “instantly detect meaningful signals about health, disease and aging.” We helped them not only demonstrate the ecosystem’s financial value ahead of an IPO and the launch and commercialization of their first product in the U.S., but also evaluated numerous commercial models to identify the best model for next generation B2B2C products. We codified the process into a state-of-the-art playbook for future product launches, helping this health pioneer become an evolved enterprise.
Building the Digital Quotient and Capabilities Post-M&A:
Following its formation in 2015, IBM Watson invested over $4 billion in cognitive healthcare capabilities (e.g., Phytel, Explorys, Truven and Merge Healthcare) to form one the world’s leading health data, analytics and insights companies. Saddled with the organization structures, roles and talent of a large tech company that had grown through numerous acquisitions, IBM wanted to understand how to modernize its product management teams. Prophet developed and deployed a proprietary framework for the modern digital product management organization across product teams, and a talent development roadmap to upskill and reskill talent to drive the new organization.
Using Shared Purpose and Employee Experience to Lead the Industry Post-M&A:
HealthSouth, a leading provider of inpatient rehabilitation, expanded their position in the post-acute care space through the acquisition of Encompass Home Health & Hospice in 2015. While this move solidified their business strategy and differentiated their care delivery model, their brand did not reflect those strengths. In 2017, HealthSouth announced it was becoming Encompass Health, reinforcing its strategy to deliver high-quality, coordinated care across the post-acute continuum.
Prophet helped develop The Encompass Health Way, a shared purpose and set of values, that not only united and connected all parts of the company, but are also being used to evolve and shape signature employee experiences and drive shareholder value from the inside out.
Leveraging a Spin to Build a Culture and New Ways of Work That Unlocks Uncommon Growth:
When Abbot announced it was splitting into two publicly traded companies, they turned to Prophet to help. In our first step, we helped modernize their brand and name to position AbbVie as the first true BioPharmaceutical company. But the promise needed to be backed up with a contemporary, innovative culture that embraces new ways of work to unlock the potential of their capabilities and deliver remarkable impact.
Creating the AbbVie Way with, and for, their 28,000 employees, we helped envision the change needed to bring more and better products to the market faster, in an increasingly turbulent environment, and to enable them to work differently…with more agility and decisiveness. Thus, an evolved enterprise was born.
As you plan for 2019, know that there is no better time than a M&A moment to reimagine and evolve how your enterprise creates better ways to organize, serve your customers, employees and investors and increase the odds that your company – not a digital native – will be the disruptor in your industry. We’ll be back in the New Year with stories on how we’ve helped transform strategic marketing and customer experience, but we’re always here to help you find and fuel uncommon growth. Reach out and let’s talk.
Learn more about becoming an evolved enterprise and successfully rising to meet the challenge of digital transformation.