Reed Smith’s report Wired Up: The convergence of technology, media and entertainment, reveals that US companies are increasingly looking overseas – however regulatory concerns in Europe are on the rise

The demand for innovation combined with renewed economic growth is directing North American cross-border M&A in the technology, media and entertainment sectors into new growth markets. Respondents in Reed Smith’s new survey Wired Up expect North America (50%) to be the most active bidder region for TME. With many corporates eyeing Europe.

Stephan Rippert, Partner, Reed Smith believes that TME companies’ ability to offer content has increased the appetite for international groups to tap into the Europe. He also advises that “international buyers should consider using the harmonized consumer and contract rules within the EU for online offerings.”

However, transatlantic cross-border deals into Europe are increasingly subject to regulatory scrutiny by the European Commission (EC), and the majority of respondents (33%) see legal and regulatory barriers as the main challenge to announcing their next TME acquisition.

Herb Kozlov, US-based Global Corporate Head of Reed Smith explains, “Political and regulatory risks must be carefully considered and understood. US firms, for example, need to take account of Europe’s tougher data privacy rules and the more employee-friendly labour laws.”

New EC rules could restrict M&A

Sweeping reforms by the EC to align digital regulation across EU member states are aimed at spurring the global competitiveness of European businesses and create up to €415bn in additional growth. Currently 42% of the digital market is composed of national online services and 54% in US-based services. That only leaves 4% for EU cross-border online services, according to commission data. But the reforms unveiled in early May have also sparked fears over restrictions for North American buyers. Nimble European start-ups and SMEs, who often leverage their own growth via US companies’ expansion, are vital to maintain a dynamic entrepreneurial stream for large US TME sector companies. Acquiring innovation, R&D and IP ranked highest among North American companies (21%) as a key driver for M&A over the past year.

Gregor Pryor, London-based Partner at Reed Smith, singles out copyright issues as a pressing concern for M&A in the sector. “Legally, the challenges are completely inconsistent policy positions both domestically and internationally when it comes to, for example, copyrights. Europe has a high degree of uncertainty because of the campaign by the European Commission, trying to break down what it considers territorial borders for copyright in Europe.”