Leaders in the technology, media and entertainment, and telecommunications (TMT) sectors understand the challenge of creating long-term value from M&A, and they are likely aware of a recent acquisition that failed to fully achieve pre-deal expectations.
As the nature and purpose of TMT dealmaking evolves, corresponding changes to merger integration strategy and execution are lagging. Meanwhile, the importance of getting TMT M&A right is increasing.
The end goal is a consistent, unified and controlled environment where all the business functions do their essential work — starting from a foundation of common enterprise data sets, technology and architecture, governance models, and processes.
Such are “convergence deals.” These encompass two types of growth-seeking M&A that TMT companies have pursued from time to time. But, these have reached critical mass in recent years to become a core component of the growth agenda developed in executive suites and boardrooms across the sector.
- Future-growth convergence: These are acquisitions of small, often private, typically venture-backed start-ups to strategically position for anticipated future high-growth markets. Targets typically possess strategic technology elements, potentially disruptive digital business models, extremely hard-to-find talent or some combination of the three
- Immediate-growth convergence: These are larger-scale acquisitions to achieve more immediate growth by targeting adjacent industries. Targets typically are incumbents operating businesses that can extend from, or leverage the use of, the buyer’s core business or infrastructure, complementing the buyer’s existing revenue model.
Three factors have created an environment for explosive growth in these types of deals:
- The rapid evolution of disruptive technologies and the new business model possibilities they enable
- Convergence at the customer level of many adjacent sectors, leading to new kinds of offering bundles and extreme competition — particularly due to the emergence of the mobile device as the primary communications, entertainment, and business tool
- Growth in VC investment, which virtually guarantees the future of convergence-shifted M&A