There are seven hurdles that companies have to overcome when doing convergence deals
The top three.
When asked to select the most important challenges to completing an acquisition, 33% of firms highlight legal/regulatory barriers, while 22% point to IP rights-related issues and 17% are concerned with the seller/buyer valuation gap.
One major challenge for cross-sector acquirers is understanding a new area of business. It’s tough, for example, educating a tech company about music copyrights. Big music companies may get seduced by the idea that Apple or Google are going to change their commercial paradigm in the next five years. However, for a big tech company, the biggest challenge is just understanding the space. Film doesn’t operate the same way as music or the same way as computer games. Companies need to learn about a new sector.
In the comfort zone.
Although interest in convergence continues to grow, and awareness of the benefits is high, many companies remain unwilling to step outside their comfort zone: fewer than one in five firms say they plan to make a cross-sector transaction in the next 24 months. Companies seem to be cautious about venturing into cross-sector territory.
The majority of respondents (31%) point to the difficulty in creating business synergies once the acquisition is completed. And 18% say affecting actual transformative change is also a challenge when integrating an acquisition in the TME space.
Integration planning starts during the diligence process and should accelerate even as term sheets and transactional documents are negotiated and signed. “An effective integration plan needs to be identified and its leaders should be working together well before closing occurs,” says Reed Smith’s Herb Kozlov.
Post-closing terms pose slightly different challenges for companies carrying out cross-sector transactions. Top of the list are indemnification-related issues: 44% of firms consider these to be the most challenging issue to address, while contingent compensation (including earnouts) is less of a worry – these are cited by 36% of companies. This may be because sellers only agree to valuations that would be satisfactory even if no post-closing payments are realised.