What do you think were the drivers of cross-border M&A in the TME space?
Mike Young: Across the globe, we are seeing an upsurge in convergence deals as companies seek to gain a competitive edge in the market. Acquisitions are either taking companies into new areas where they are not already present or acting as supplement to what they already own. One example is the larger tech companies, especially in the lower end of the mid-market, which are active in bringing the people and the IP in to their stable. They are then able to use them to develop their products and provide a new home for them. One thing that the start-up or high-growth companies have is a really interesting entrepreneurial culture, which the larger US behemoths struggle to keep and retain.
How easy is it for TME companies to structure financing for cross-border M&A?
MY: The debt markets are tighter than they used to be when activity was at a high point. The good news for the market is that there are a number of buyers who do not rely on external financing but have significant balance sheets and can complete deals without raising money. Corporates such as Facebook, Microsoft and Yahoo can carry out a billion-dollar deal without seeking third-party finance.
There is also private equity interest, but the PE deals are structured in a very different way to how they used to be in terms of the level of debt that is put in to those businesses. We are not looking at the same level of leverage we had a decade ago.
Is convergence a trend in cross-border acquisitions and what part will it play in the future?
MY: The market is still very much trying to find its feet, and figure out how to support content. Companies are still exploring how to make money with all the new devices that are available and this uncertainty is fuelling the market. Whether it be through acquisition, joint venture, or just contractual arrangements, we are seeing technology companies making deals with record labels and technology companies doing deals with studios.
People understand that they are in a fast-moving environment and they have to go out and try things, so you will see relatively short-term deals done to test the water. If this model works, it could become very significant in the future. Those transactions may not be 10-year deals, they may be relatively short ones that are done just to test the market. As a result, neither party is locked in to paying or receiving less or more than they feel they can actually get in a longer term transaction.
Where is the major European hotspot for TME M&A at the moment?
MY: There is no doubt that a lot of the activity is happening in London. For example, US companies are using London as an entry point into Europe and as you would expect, London and the UK are perceived as safe environments to launch a European offering. Some of the more significant acquisitions in the past 12 months and a lot of the deal activity has touched London.
A lot of the venture capital we are seeing is also based in London and it is likely that they are more comfortable with London businesses. Berlin and Stockholm are big hubs too, but London is far superior in terms of volume and the significance of the contributors.