Dealmakers looking for value-adding transactions in the months and years ahead should be prepared for competition. We anticipate increased deal activity in the emerging digital technology sectors such as digital media services, IoT, AR/VR and artificial intelligence. Scandinavia and the U.K. both appear poised for cross-border M&A attention in the near future. It will be interesting to see how Chinese interest in the digital publishing and gaming sectors as well as U.S. and European focus on the advertising and marketing tech sectors play out in the market.
Competition on the rise.
Look to the future.While the majority of respondents were focusing on those segments that make sense at present, such as digital media services and advertising and marketing tools, far fewer were concentrating on aspects such as AI, gaming, augmented reality and drone technology. The pace of technology is relentless—companies need to have an eye on the future and to build this into their acquisition strategy.
The human factor.M&A is about more than just buying emerging technology, picking up patents and moving into new segments—it’s about people. Therefore, it’s surprising that “obtaining human capital” is the primary motivation for only 1% of dealmakers in our survey. This is particularly worrying when 34% of respondents feel that cultural mismatches with targets are the biggest challenges when considering M&A deals in the sector. Dealmakers need to pay close attention to both management and key employees of the target—otherwise, they may find that their sparkling new acquisition could quickly lose its shine.
Risk vs. reward.Given the current macroeconomic and geopolitical volatility, it is understandable that companies are doing fewer truly global deals (only 42% according to our survey) and that even fewer are willing to target early-stage startups (those less than two years old). However, with strong due diligence and local experts on the ground, it could be worthwhile taking a calculated risk on a young startup in a location slightly farther from home. After all, it only takes one Snapchat or Uber to truly disrupt the industry and bring real rewards.
Think global.A significant 42% of respondents do not think that local specialists are vital when targeting deals. This could be an unnecessary risk. Forgoing local knowledge for cross-border M&A deals at the targeting stage could lead buyers into a minefield of regulatory and cultural issues. Thankfully, when it comes to due diligence, 81% believe local specialists are vital for all deals—perhaps the 19% that see them as important only on occasion should take note.
Successful integration is successful M&A.Getting a deal across the line will claim the headlines, but successful integration is the only true measure of long-term M&A success. And more often than not, this success comes down to the “human question.” Over half of respondents found integrating work cultures to be the most significant challenge in the process. This is especially true in deals between agile startups and larger, established corporations. The challenge comes when the executives working on the M&A transaction are often not the same executives responsible for the integration and execution. Executives should develop an integration strategy and roadmap throughout the stages of due diligence. The successful execution of the plan after the transaction is critical to optimizing the investments and growth potential in the deal.
In the fast-moving digital media and frontier technology sectors, where incumbents are under constant pressure from evolving technologies and emerging competitors, M&A often represents the best way to capture or retain market leadership.
Nevertheless, the dealmakers surveyed in this report are acutely aware of the risks they face. One danger is being late to an opportunity or emerging growth area. Speed to market has become one of the biggest indicators and measures of success in this market. Another danger is completing a deal with the wrong company. There is a tightrope to walk between success and failure, but those who have taken the time to structure a thoughtful strategy in advance will have the best chance to thrive.
Alongside this danger sits execution risk—the danger that dealmakers will make the wrong strategic decisions for their businesses, or that due diligence or integration failures will jeopardize the potential value of a transaction. While this risk exists with any type of M&A, the rapid pace of change in the media and technology sectors often forces dealmakers to act at speed, leaving them more vulnerable to such setbacks.
The message of this research is that, while the technology and media sectors offer exciting M&A opportunities—and dealmaking will often be essential as businesses seek to monetize their existing assets or to retain market leadership—those dealmakers that fail to pay attention risk being left behind. They should therefore be mindful of a number of key lessons:
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