Table of Contents
- Introduction
- Digital-First M&A: There Is No Alternative
- Overall Strategy
- Due Diligence
- Post-Merger Integration
- Data architecture
- Aligning KPIs
- Platform integration
- Quick wins in allied processes
- The human element
- Rocket Companies and Mr. Cooper Group: A Digital-First Mega-Merger
- Unlocking Value with Digital Business Transformation
- Final Thoughts
Introduction
The word is out: M&A is no longer about financial statements, product synergies, market integration, and cost management. It has moved well beyond all that. In the digital world, punctuated by disruptive technologies emerging on a weekly basis, M&A is all about unlocking value, discovering digital cohesion, and the ability to harness and manage the data explosion in the combined entities. This ties in neatly with the rapid growth of intangible assets in an enterprise. According to M&A expert Oliver Cunningham, intangible assets, which accounted for 15% of the S&P 500 in 1975, grew to 90% by 2021.
Given the above, any M&A process that does not factor in the discovery, analysis, valuation, and forward-thinking predictive process is destined to fail.
When Meta acquired Instagram for a whopping $1 billion, it was roundly criticized for overpaying for a 13-person startup with 30 million users. Cut to 2025: Instagram’s value stands at anything between $100 billion (Investopedia) and $114 billion (Kantar).
Meta did not review balance sheet consolidation or revenue consolidation in 2012. It was looking to dramatically expand the social community, and Instagram was the perfect platform. This deal was all about unlocking value, and today, Instagram has around 2.2 billion users, up from 30 million in 2012.
Digital-First M&A: There Is No Alternative
The digital-first approach to M&A is no longer a nice-to-have mindset. It is the only mindset to have. From being a cost that had to be managed and controlled, today IT assets represent a significant pool of value that may create future value far beyond the sum-of-the-parts, even when the original thesis of the acquisition is about the target’s other, more attractive assets.
An interesting case study for a digital M&A is that of Reliance Retail acquiring Just Dial in 2021. With over 36 million listings and closer to 125 unique users in June 2021, Just Dial presented an opportunity for Reliance Retail to extend into the B2B commerce arena and combine the existing RR’s backend with that of JD. The synergies that rose were over and beyond the financial integration of the companies and extended into the audience spread of JD, which was over 100+ pin codes in India. In a post-COVID scenario, RR wanted to leapfrog its presence beyond the Brick-and-Mortar presence and create a strong online platform for playing in the B2B commerce space, which was JD’s stronghold. The M&A primarily extended to the integration of the two platforms and creating a unified data architecture that could cater to a wider gamut of audiences and services, beyond what either of the companies was offering.
According to a report by Bain, four critical steps will be markedly different in a digital-first M&A, as compared to a traditional M&A.
- The Overall Strategy: Unlike the traditional M&A, which looks at the combined balance sheets and financial parameters, acquirers in a digital M&A need to evaluate the degree of distortion that digital has caused to the value chain in the industry and, by extension, to the target. This helps them to understand the degree to which digital has, or could help deliver on the specific strategy across specific operating vectors – such as customer engagement, operational models, sales process, and customer acquisition and retention process, specific point-solutions within the operations. This also helps them answer some of the basic questions in terms of their strategy – defensive, disruptive, forward-looking, etc.
- Due Diligence: This is a crucial departure from the traditional M&A DD process. In a digital-first M&A, the DD process, while looking at historical data, will primarily focus on forward-looking diligence. The scalability of the acquired assets, the ability of the acquired assets to provide a leap-frog to the acquirer in both markets, and the ability to provide new capabilities to the combined businesses – these are crucial questions that need to be answered, which few financial mandarins will be able to address.
- Post-Merger Integration: Unlike the traditional M&A, where the PMI begins on closure of the deal, a digital-first PMI begins well before day 1 and continues well beyond the ‘official close’ of the deal. Digital integration, identifying ‘hidden’ digital gems, decisions to keep/discard the digital architectures of either companies. Given the criticality of PMI in any deal, a digital-first PMI will need to focus sharply on:
- Data Architectures: A single source of truth needs to be created for synergy, which calls for unifying the data architectures of both entities, migrating to a clean database, and creating integrated business and customer data lakes for the combined entity.
- Aligning KPIs: Building real-time dashboards, tracking CAC and LTV for customers, integrating sales and marketing dashboards to link MQL, SQL, conversion, and building a seamless lead-gen process.
- Platform Integration: Assessing the tech stack of both companies and integrating the same with APIs and middleware.
- Identifying quick-wins in allied processes: In areas like HR, customer support, and finance function, there could be quick and immediate integration using the existing solution and scaling it up across the entity.
- Identifying the ‘human’ element for team integration: Identify the best practices in each entity and deploy them across the unified enterprise to ensure a higher degree of human touch to elevate the business integration process.
Rocket Companies and Mr. Cooper Group: A Digital-First Mega-Merger
The recent $9.4 billion acquisition of Mr. Cooper Group by Rocket Companies is a landmark example of M&A 2.0 in action. This deal consolidates two mortgage powerhouses, creating a combined servicing portfolio exceeding $2.1 trillion and nearly 10 million clients: about one in every six U.S. mortgages.
Strategic Objectives
- Scale and Reach: The merger instantly expands Rocket’s footprint, making it the largest mortgage servicer in the U.S.
- Digital Platform Ambition: Rocket aims to build a comprehensive, technology-driven homeownership platform, integrating mortgage, real estate, and financial services.
- Data and AI Leverage: By unifying vast customer datasets and investing in advanced AI infrastructure, Rocket plans to deliver hyper-personalized products and anticipate client needs proactively
Unlocking Value with Digital Business Transformation
Navigating the complexities of M&A 2.0 requires specialized expertise. This is where business transformation services partnering with experience in Post-Merger Integration and Operations Transformation become indispensable. These services are specifically designed to help organizations realize the full value of their M&A activity by:
- Streamlining Operations: Identifying redundancies, optimizing workflows, and implementing best practices to achieve operational excellence across the merged entity.
- Integrating KPIs: Harmonizing key performance indicators across departments and business units, providing a unified view of performance, and accelerating accountability.
- Accelerating Time-to-Synergy: Employing proven frameworks and methodologies to rapidly integrate functions, technologies, and teams, ensuring that anticipated synergies are realized efficiently and effectively, thus maximizing ROI.
Final Thoughts
M&A 2.0 signifies a profound evolution in corporate strategy. It’s no longer just about financial engineering or market muscle; it’s about strategically acquiring digital capabilities, customer bases, and technological infrastructure to accelerate growth and enter new markets. The success of this new era hinges on a meticulously planned and executed digital-first PMI process, prioritizing the integration of data, people, and technology from day one.
By Rohan Shah
