Q. How have M&A strategies evolved when it comes to the use of cloud strategy?

In the past, most M&A strategies that leveraged the cloud focused primarily on creating IT efficiencies by moving from Capex to Opex. Later, acquirers saw cloud as a pathway to increase scalability, compliance, reliability, durability, speed, and efficiency through easier adoption of new capabilities. More recently, M&A strategists have increased their focus on value creation through innovation in the cloud. They employ easy experimentation in the cloud with low risk changes. This approach allows companies to probe for disruptive potential with new products and new markets, and programmatized reviews and testing of new technologies. In short, cloud has evolved from a simple cost savings component of M&A, to one of strategic impact and value creation.

Q. What are common M&A risks and how can cloud help in avoiding them?

According to McKinsey, about 80% of M&A transactions fail to realize their intended value. Conversely, a 2021 business value study by The Hackett Group showed 83% increased returns on both equity and net margins, with 55% increased total shareholder return when operating in the cloud. Most people fail to realize the strategic importance of cloud for innovation and growth. Instead, they focus on managing cloud as an IT resource. This ignores the end goal of potential value creation, which is why investors are interested in funding the transaction. Companies should be mindful of strategic planning related to the revenue generating promise of the business. Part of the M&A effort needs to align revenue generation with solutions for technical debt, architectural improvements, integration workstreams, and value creation.  

Q. What are the costs associated with cloud integration in M&A?

The costs associated with cloud integration in M&A can vary widely depending on the complexity of the integration. A Preservation type transaction could be done very quickly, perhaps with only some minor ERP integration work. In contrast, a goal of Symbiosis could require a full re-architecture of key applications and could have a timeline from several months to 1 or 2 years. AWS has many ways to help customers reduce spend and avoid heavy costs with an M&A integration. There are also various funding programs that could be applicable to the M&A integration, such as migration and license optimization.

Q: What are the chief security concerns in the cloud that are relevant to an M&A effort?

Because of the complexity of integrating M&A transactions, it is natural to see significant increases in the number of cyberattacks on a company from the time of an M&A deal announcement to the deal close. Spearfishing, together with other infiltration and exfiltration techniques are common M&A security threats, which can be compounded with subsequent extortion demands. Cybercriminals know that a security breech could derail a deal, so the threat vector during the entire transaction period is logically wider and deeper. For example, an executive who’s under a tight timeline and feels pressured to work fast may unknowingly open a malicious email that appears to be tied to the transaction. For this reason, prior to announcing the transaction, a full security assessment should be conducted.

Q. How can cloud strategy help in the pre-transaction phases in M&A?

The likelihood of added risk, redundancy, and technical debt increases in these transactions if a solid cloud strategy is not organized as early as possible. With AWS involved early in the process, we can help you work backwards from your goals and organize a value creation plan that aligns with your deal rational. The closing effort typically occurs on a tight timeline. AWS can help with technical due diligence, running data-clean rooms, data labs, benchmarking, security assessments, technical debt assessments, learning needs assessments, application portfolio assessments, training programs, and even guidance on go-to-market tactics. Our AWS Partner Network can go even further, helping with specialized technology and engineering needs, commercial and financial due diligence, legal and other elements of the pre-transaction phase.

Q. How does my Investment Thesis or Deal Rationale tie into my cloud strategy?

How you execute your cloud strategy, with the target requiring more autonomy, or more interdependence with the new parent, will affect your Buy-Side approach. A Holding approach often requires some financial systems integration for oversight. A Preservation method typically builds upon that with added network connectivity and organizing economies of scale in cloud service. An Absorption goal will go further, integrating IT synergies such as compliance, scale, data and IP. Building further to a state of Symbiosis requires tackling complex systems integration and organizing around the best-of-breed technologies between both companies.

Q. How can we maintain compliance in the cloud during and after the integration period?

Complying with various regulations and industry standards, such as HIPAA, PCI DSS, and GDPR will require a well executed integration plan, and each approach can be different. AWS can guide you through the options to help you maintain compliance throughout the integration.

Q. What are some examples of how AWS can assist me in my M&A efforts?

AWS has the ability to help you in all phases of the M&A process, starting with how you formulate your investment thesis, to pre-transaction, integration, and value realization, with metrics and measurements along the way. AWS can be your accelerator and enabler to achieve your business goals. We’ll provide the tools and expertise to help you streamline efforts and reduce M&A time and cost, so you can focus your resources on innovation. There are a variety of services available through AWS and AWS Partners, ranging from innovation workshops to help you envision and plan around your Investment Thesis, to Cloud Diligence Assessments or AWS Clean-Rooms for pre-transaction due diligence, to application portfolio assessments for post-transaction integration. 

Q.  How do I organize our product and innovation strategy with our 100-day M&A planning?

AWS assists customers in developing and executing 100-day integration M&A planning that includes accommodations for cloud, hybrid, and on-premises needs. We have completed thousands of customer engagements with a focus on innovation practices, culture of innovation, roadmap acceleration, product strategies, and go to market planning. We have templates, programs and other mechanisms that can be useful to organize both the planning and execution of 100-day plans and beyond. For deeper engagements, AWS Professional Services and AWS Partners have extensive experience in creating and executing these plans with AWS customers.

Q. How can I determine existing skills and skills gaps at the acquired/target company?

Cloud skills are crucial to accelerate integrations post-close and to realize innovation goals. Cloud certifications are a great way to determine existing skills sets within an organization. AWS offers a Learning Needs Analysis to help determine skills gaps across teams. We have extended guidance on workforce management that is also applicable to M&A planning.

Q. What happens after an M&A transaction is closed? How do you ensure the acquisition is a success?

A good plan with the support elements in place is required. AWS can help with our automated migration tooling, reporting, cost optimization, dashboards and best practices. We help our customers save time and reduce the ambiguity and confusion of the post-transaction experience. AWS experts can help accelerate the completion of these tasks and help you establish internal teams using AWS tools and guidance, or by working with AWS Managed Services, AWS Professional Service, or AWS Partners. This can all be accomplished based on deal needs, budgets, and timelines.

Q. How does the approach differ when doing a divestiture versus an acquisition or a merger?

Divestitures can take different forms, such as spin-out, sell-off, or carve-out. The exit strategy can vary greatly for each type. Full separation from the parent entity can mean more work in order to make sure the departing entity is self-sufficient. The divested entity may want to begin an aggressive modernization program, and AWS can continue to help and guide the divested team with the most optimal cloud paths available, provide support along the way, and make them aware of various programs that can help increase their potential for success.

Q. How can my cloud strategy impact my M&A exit plans, or my ability to attract more funding?

If you plan to eventually exit from your acquisition, prepare your company for acquisition, or attract more funding from new investors, AWS can provide exit readiness guidance related to your cloud practices that can help your leadership team prepare for this type of Sell-Side equity event. The goal is typically to help you get a better understanding of how your specific cloud strategy impacts your business value so you can communicate effectively with investors. If you can help your investors or acquirers understand your ability to create more value by using cloud, it can help to increase investor confidence in your upcoming transaction. Preparing for exit on your cloud strategy can also help you increase equity valuation by uncovering gaps and remediating risks that would otherwise negatively impact your deal perception.