A new way of looking at portfolios
Companies and investors now have to grapple with the challenges of a more volatile market place where the frequency and impact of external events can quickly undermine business models. In this rapidly changing environment, we expect deal making to become more dynamic and complex. In the past deal making may have responded to long term and more static strategies. For example, to enable companies to build up a geographic presence in certain parts of the world, to acquire scale or to bolt on specific capabilities. However, now in a market where volatility and disruption are the pervasive drivers, strategies have to be more flexible and evolve quickly. As a consequence deal making will reflect these changes. In a technology led world, businesses will need to acquire and divest regularly diverse assets to help position themselves and “hedge” for future growth pathways. These investments will encompass traditional sources of energy but increasingly newer ones, as well as extending across the low carbon value chain (such as access to reserves of lithium or some new material to supply the growing demand for energy storage). Business will need to partner much more frequently with other companies that provide them with the capabilities and technology to deliver long term sustainability.
In order to execute this level of deal making, businesses will need to adapt their mind set and processes to be significantly more agile. They will have to review and evaluate portfolios frequently with a willingness to ‘flex’ these business interests (buy and sell) at short notice in response to market events. In oil and gas parlance, the days of drilling a well in a field, maximising production and then decommissioning the well, are numbered. Businesses need to manage multiple sources of new energy and hedge across the value chain. Note for example how utility players are acquiring companies that facilitate the energy transition such as battery producers, smart meter and energy management providers.
So as businesses navigate through this era of disruption it is difficult to know whether the strategy and business model you have today will survive the ‘unknown unknowns’ of tomorrow. Therefore it is critical to have a resilient deal making capability in place to flex the business according to the ebbs and flows of change. Having the right deal strategy, execution and portfolio management in place today, might just decide if you are still in business tomorrow.