Convergence is an emerging trend and failure to take note could leave companies flailing
Willingness to embrace convergence opportunities could put acquisitive businesses ahead of the curve. Although intentions for convergence transactions are currently at modest levels – around one in five transactions across the TME spectrum is cross-sector – respondents readily articulate the potential benefits. Convergence is also seen as a trigger for creative disruption in TME corporates by 23% of respondents. There are seven ways to stay ahead of rivals.
1. Choose with care
With valuations rising, buyers can help their efforts by doing more legwork themselves. “That means making greater efforts to seek out and create the connections that can lead to non-competitive situations,” says William Doran.
2. Try before you buy
Short-term deals allow companies to test the water before buying. “Not necessarily M&A, but commercial deals of limited duration that allow participants to explore what works – and whether to move on to something more significant,” says Reed Smith’s Michael Young.
3. Be prepared
In a competitive environment, the ability to execute swiftly may make the difference. “Just as speed to market is often critical to the success of a tech company, speed to signing and closing is often critical to the success of an acquisition strategy,” says Reed Smith’s Herb Kozlov.
4. Be aware
Every jurisdiction is different. For example, US buyers in Europe need to take account of tougher data privacy laws. There are also key differences in employment law. Businesses also need to understand that they may find it hard to enforce their IP rights in some countries.
5. Be diligent
Focus on integration oriented due diligence. “Look at elements that are going to be essential for integration — key personnel, client relationships, information technology and overlapping business units and functions,” says Reed Smith’s William Doran.
6. Engage to win
Effective communicationscan make all the difference in creating business synergies. Engaging withthe target helps to keep theworkforce on site, and candispel the concerns acting as abarrier to successful integration.
7. Be creative
The right deal structure works. Sophisticated consideration mechanisms can be put in place as buyers struggle to justify valuations. Earnouts will drive deal delivery, but don’t agree to an unsatisfactory valuation if earnouts don’t materialise.