How innovation and M&A intersect

Recently Geoff Tuff, leader of pioneering innovation strategy firm Doblin (a unit of Deloitte Consulting) and Mike Armstrong a Director in Deloitte Consulting’s strategy and mergers and acquisitions [M&A] advisory team, came together in a CVI² webinar to provide an insightful look at how innovation and M&A should intersect to drive corporate growth and performance.  The webinar is available on demand for interested parties.

Bell Mason Group [BMG] became interested in the relationship between M&A and innovation as we’ve begun to see leading corporate venturing and innovation players effectively use ecosystem partnering and smaller-scale ‘innovation M&A’ as important tools for adjacent and transformational platform/portfolio development and to accelerate new business commercialization. We see ‘Innovation M&A’ as related to traditional transaction-oriented (large to large) M&A but often with different strategic objectives or requiring different skills before, during and after an acquisition.

So we believe it’s increasingly important to think about both the strategic and the functional integration of Innovation and M&A, particularly in addressing adjacent and more transformational business opportunities. In the webinar Tuff and Armstrong, who see M&A and Innovation as part of a virtuous circle, explored the characteristics of successful M&A and Innovation functions and presented some compelling integrated case studies (Amazon, Intuit, Ecolab) strategically framed by a combination of Doblin’s Ten Types of Innovation® model and Innovation Ambition Matrix  and Monitor Deloitte’s M&A process. 

Geoff Tuff, of Doblin, has the numbers to prove this Innovation/M&A intersection matters – Doblin research shows that top innovators outperform the S&P 500 and that integrating more types of innovation across a portfolio of ambitions delivers superior financial returns (5 year indexed stock performance), and that the most successful companies combine high levels of innovation with high acquisitiveness.

Doblin and Monitor Deloitte see that these companies are doing more deals on average than other companies, both to fill capability gaps and to spark new ideas and innovations within the walls of the company. 

Armstrong, of Monitor Deloitte, noted that “We are observing companies that seem to be able to pull M&A and Innovation together experience a Ping-Pong effect between the two types of activity…almost like a ratcheting effect where one is feeding off the other.’  Tuff cited Amazon as an example of a company that has done this very successfully and “disrupted itself at least four or five times, continuing to innovate in ways that no one would have thought possible.”

On the other hand, Tuff warned that “The challenge is that if you have innovation and M&A sitting in completely different parts of the organisation and approaching their missions in separate ways, you are going to miss a whole lot of opportunity and leave a lot of growth on the table. If you can link M&A and Innovation together in a systematic and purposeful way you are going to lead to a much greater range of growth opportunities.” 

Tuff and Armstrong closed by providing guidance on how to bring M&A and Innovation groups together and to incentivize collaboration. As is the case with many CVC teams, Armstrong highlighted the importance of rewarding strategic deal value: “If the M&A team can be rewarded based on the follow-on synergies that come out of any deal, there is every incentive on their part to bring in innovation to help drive and explore different ways of leveraging assets and capabilities.”