A study of 100 senior corporate executives by global law firm Reed Smith, in
partnership with Mergermarket, reveals that 84 per cent of technology, media and
entertainment (TME) companies expect to see more cross-sector mergers and
acquisitions (M&A) convergence deals over the next two years.
The report, entitled “Wired up: The convergence of technology, media and
entertainment’, explains the changing M&A landscape for TME firms. This is being
driven by an increasingly fierce battle fought by TME firms who are attempting to
gain a competitive edge in the market. 2014 saw new levels of convergence deals
amounting to US$34.5 billion, with this trend predicted to increase further.
The report reveals that cross-sector convergence varies widely across the TME
sectors. Entertainment businesses are the most willing to branch out, with more
than 33 per cent planning non-entertainment purchases. Though this willingness has the
potential to put acquisitive businesses ahead, there are some potential risks
involved in cross-sector acquisitions.
Gregor Pryor, Reed Smith partner and co-chair of the firm’s global Entertainment
and Media Industry Group, explains, “One major challenge for cross-sector
acquirers is understanding a new area of business. This can be a steep learning
curve. If you are a big tech company, the biggest challenge is just understanding
the space. Film doesn’t operate in the same way as music or the same way as
computer games. Companies need to learn about a new sector.’
The report also shows that 57% of TME companies which are seeking growth are
saying their next acquisition is likely to be outside their home market. Of those
businesses in search of cross-border opportunities, 37% say they are most likely to
target Asia-Pacific, followed by Western Europe (23%) and North America (17%).
These expectations must be set against the need for firms to understand the
political and regulatory risks in the target markets.
This desire to converge is not limited to the global giants in the industry. There has
been a recent upsurge in so-called “quad play’ deals, in which telecom providers
seek to become a one-stop shop for TV, broadband, fixed and mobile telephony.
Michael Young, corporate finance partner at Reed Smith, explains, “With increased
cross-border convergence activity, companies must be prepared for the regulatory
challenges that will result as they move from one jurisdiction to another. Local
guidance, whether that be legal, commercial or financial, thorough due diligence
and thoughtful deal structuring is critical to the success of these transactions.’
Nick Cheek, global managing editor of Remark, the events and publications division
of the Mergermarket Group, adds, “In the face of aggressive and agile competition,
trusted business models can no longer be relied on. For many companies, survival
increasingly hinges on developing capabilities beyond their traditional core.’