Strategic growth by M&A is the future for many of today’s companies

What is happening in Norway’s largest companies? What do you do when your company is unable to grow any more? Or grow fast enough? Or when your market or margins start to evaporate? That’s when action is required: You need investment in new business. You need to target strategic growth, better known as M&A – Mergers and Acquisitions.

By: Espen Bordvik, Former Head of Virtual Data Rooms, Admincontrol

The state of affairs

Technological progress, welfare growth and globalisation of the competitive arena are now key drivers for many companies’ strategic decisions.

Progress has never moved faster and today’s companies face more challenges than ever before. We are seeing an exponential adoption rate in new technology. Companies that fail to keep up will be quickly outdistanced by their competitors. This creates tremendous pressure for strategic change and restructuring that not even the largest and best-established companies will be able to avoid.

In a few years, many of the largest companies we are familiar with will have been marginalised or have disappeared. According to the McKinsey management consulting firm, 89% of the original Fortune 500 companies from 1955 no longer exist, and 40% of the current Fortune 500 list won’t still be on it within 10 years. Things will be no different here at home either.

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What does it take to succeed?

Those who hit the jackpot with their strategic decisions in this dynamic landscape will come out winners. They will also end up as completely different companies from the ones we recognise today.

So what is actually required? Are there identifiable success criteria? Here are four factors common to today’s successful companies.

1: The will & the skill to change

Fast movers are striding out ahead, and being a fast follower doesn’t cut it any more since you are out of the race before you’ve even begun. This makes the will and the skill to create change an absolute prerequisite for success. We can even go as far as saying that it is better to have tried and failed than not to have tried at all.

2: Strategic acquisitions, mergers and investments in startups

When organic growth is insufficient for achieving strategic goals, the alternative is to purchase and integrate enterprises that can boost the renewal process. Some choose to build something from the ground up, others opt to acquire and incorporate existing enterprises to induce rapid change in the established organisation and procure new income streams.

Many Norwegian companies that are sold are relatively young SMEs that have demonstrated an ability to generate turnover and dynamic growth. Fortunately, such startups are not thin on the ground. And we need to be optimistic that the framework conditions for startups, growth companies and private equity funds can change quickly enough that we actually get more M&As between Norwegian companies, and not just the sale of Norwegian companies to overseas buyers. We need some unicorns here in Norway.

3: Investment in new business models and further development of the old

To demonstrate what we mean, let’s focus on finance: Here we see growth in new lenders, and consolidation and downscaling of traditional banking activities. In Norway, the opening battle is between Vipps and Mobilepay. The giants, Facebook Payment, Apple Pay and Android Pay, haven’t really taken off here yet.

Now that “everyone” can quickly become a payment processor, it would be astonishing if companies like Norgesgruppen, Norwegian and IKEA did not want to have full control of their customers, and take responsibility for account transactions themselves. 2018 will be especially interesting when the EU PSD2 directive is rolled out and the banks lose their monopoly on customer account information.

The banks will need to find new income streams and redefine their roles. DNB looks to be making a smart move in starting a fintech incubator, uniting its forces and redefining itself as a technology company.

 

4: Investment in new technology: artificial intelligence, the Internet of Things and Big Data

Many of the changes that today’s businesses will face are the result of new technology. Success will depend on the readiness to invest in new technology and innovative solutions. One common trait of today’s successful companies is a high level of M&A activity in technology for artificial intelligence (AI), visual intelligence, the Internet of Things (IoT), digital currencies, Big Data, data security and omni-channel integration.

There’s evidence of this in some transactions from 2016:
• Ebay’s acquisition of the Swedish AI company Expertmaker
• Salesforce buying the AI companies MetaMind and Beyond Core
• Spotify targeting Big Data with the purchase of Preact.
• Ford has invested in AI for 3D processing through the purchase of Saips
• And UBER has taken a new step towards self-driving vehicles by acquiring OTTO

 “Banks will need to find new income streams and redefine their roles. DNB looks to be making a smart move in starting a fintech incubator uniting forces and redefining itself as technology company”, says Espen Bordvik.

Who can we learn from?

What do Norway’s largest companies Statoil, DNB and Telenor have in common? They are all well-established and financially highly successful businesses that have understood that business as usual no longer works and that are demonstrating dynamism and flexibility.

Statoil Energy Venture is a new fund which is buying companies in the renewable energy field. DNB is creating a new Vipps company along with more than 100 other banks, and has created a separate incubator for fintech companies. Telenor is looking for new income streams and has recently acquired the new advertising platform, Tapad. We are certain to see more M&A activities from these companies going forward.