As M&A Activity Heats Up in 2021, Upgrading Technology Can Increase Retail Brand Value
February 17th, 2021 - Payments, POS
By John Tait, Global Managing Director, TNS Payments Market
Last year was a great year — for retail acquisitions and consolidation, anyway. The value of M&A deals targeting the retail sector increased 15% year over year from 2019 to 2020, and many buyers are just getting started. EY predicts M&A activity is likely to accelerate in 2021 and beyond “as companies position themselves for improved economic activity and reframe their future for the post-COVID-19 pandemic era.”
This is great news for any mid-sized retailer looking to sell off branches or even an entire brand in the next one to five years. But there’s a catch: To get the most value out of a sale, retailers may need to make some upgrades and investments, especially around IT infrastructure and network technology.
Technology matters in M&A for a few reasons:
- IT infrastructure dictates how fast and how easily the buyer can accommodate, absorb or unite with the seller, which thus determines how fast a firm can start reaping the rewards of their investment.
- Buying a brand with digital transformation capabilities will be a key “offensive M&A strategy” in 2021 because it can help the acquiring company transform its own business to safeguard the future.
- Last, but certainly not least: A brand’s technology environment can affect the terms of the deal — meaning how much money a retailer gets for the sale of their brand or storefronts. That’s because purchasing companies with outdated technology can impact the buyer’s revenue and the lifetime value of an acquired brand. If a pre-deal technology audit reveals a brand’s IT infrastructure is not up to modern standards, the buyer has the leverage to renegotiate to a lower price.
If you’re entertaining the idea of selling in the near future, audit your business’s technology posture now and see what you might need to begin upgrading. While there are a number of areas buyers will look at, it might be wise to start with foundational networking infrastructure, especially if you’re still running operations on an MPLS or other decentralized network.
More modern options like a managed-services software-defined wide-area network (SD-WAN) simplify your network management now, while also offering potential future buyers some attractive qualities:
- SD-WAN can act as a network overlay that would allow a buyer to integrate multiple stores dispersed across a geographical area at the network level. A PE firm or acquiring company thus can connect everything in its portfolio under one network — even if some of the brands are still running on legacy systems — and keep stores under a common business model as the firm begins refitting locations. And — depending on the equipment and/or vendor — SD-WAN can protect sensitive personal and financial data and traffic, so the security of the firm’s existing environment is not compromised.
- An M&A process can take anywhere from six months to years to finalize. Diversity of managed communications, combined with the intelligence of SD-WAN, can improve a branch’s uptime, reducing the risk that POS terminals will go down and interrupt business at the store level — so buyers keep pulling in revenue throughout the M&A process.
- Using a combination of managed wireless and IP connectivity with SD-WAN instead of purely MPLS can lower or eliminate circuit costs for retailers operating in a mix of rural and urban markets. This saves retailers money now while offering future cost savings to potential buyers.
- An acquired brand’s network will need to be able to support any future digital bells and whistles for an “offensive-M&A-strategy” buyer with an eye for digital transformation capabilities. Because SD-WAN can use the best network route available at any given time, it allows different types of network traffic to be prioritized as needed. This provides redundancy and allows retailers’ networks to support new in-store and eCommerce digital transformation initiatives: free customer Wi-Fi; high-bandwidth services like digital concierges; omnichannel payments; smart cameras that provide in-store video analytics, and more.
Whether you’re looking to sell, be acquired or even just gain a competitive edge, you need the latest technologies in your stores and branches. Investing in dynamic network technologies like SD-WAN managed services will help modernize and boost your brand’s value for any future deal, while giving you a faster, more reliable, more secure network in the meantime.
John Tait is Global Managing Director of TNS’ Payments Market business. He is responsible for identifying and driving growth across the Americas, Europe and Asia Pacific regions, and is focused on meeting the unique requirements of TNS’ customers.