We explore the top seven drivers of TME convergence
According to Reed Smith’s recent report Wired Up: The convergence of technology, media and entertainment, there are seven main drivers:
1. Disruptive innovation. New devices, methods of delivery and types of content will all spur M&A activity as businesses scramble to grab an audience and consolidate competitive advantages.
2. Rapid consumer adoption of digital media. “Consumers are now used to dealing with technology, which drives acquisitive behaviour. Even Facebook sometimes needs to acquire a fast-growing competitor,” says Gregor Pryor, partner at Reed Smith.
3. Financial cycles. Buoyant debt and equity markets as well as an abundance of cash on hand are spurring transactions. However, there is a danger that the collision of easy capital, rapid technological change and the return of ‘animal spirits’ could risk generating a bubble market.
4. Mid goes for early. One of the key drivers will be early-stage technology businesses being acquired by mid-market companies that want to take over several similarly positioned companies.
5. Media opens up. Media organisations are buying up-and coming digital production businesses to integrate increasingly key functions internally. Indeed, 71% of respondents believe that media companies will be driving convergence as they look to improve technology platforms and delivery tools.
6. Tech on the march. Technology businesses are eyeing media opportunities, especially those involving advertising and advertising platforms. Improvements in digital advertising and data analytics have driven faster growth for both established and new companies. Sixty-five percent believe that convergence will be driven by both technology and media firms looking to become conglomerates. This could be driven by highly publicised moves by TME giants such as Google, Disney and Facebook, but could also point to the increased scale of converged businesses in the future.
7. General M&A trends. The trend towards convergence needs to be understood in the context of firms’ wider M&A aspirations. A number of widely cited acquisition drivers, such as entry to new product offerings and acquisition of new technology, have a strong cross-sector flavor but vary in importance for the different types of businesses. Thirty-four percent of technology companies say that entry into new geographies is the most important driver for acquisitions.
According to 23% of respondents, increasing market share across existing products and geographies remains the key for growth. The principal of extending the core to create adjacency growth is clearly well established for such firms, whether or not they plan to acquire within their own sector.