As potential future business models multiply and evolve, complexity, convergence and the need for scale and speed to market are all accelerating each other. A wise TMT company needs more bets on the table than can be covered by M&A alone.
That’s why one of the clearest data points to emerge from our research is the rapid growth of strategic alliances and partnerships across all three TMT sectors. Beyond the data, however, EY has seen a qualitative change in the nature of TMT partnerships.
“Many past partnerships were looser affiliations,” says Mitchell. “Alliances today in TMT are frequently more significant and tightly integrated. Partners are sharing data, jointly developing products and offerings, and actively building ecosystems and platforms. There is more real operational integration between partners.”
Getting convergence right
TMT companies face a multitude of tough questions when evaluating convergence options:
- What types of technology and content would best complement our growth strategy?
- Where are the best acquisition and partnership opportunities?
- What deals might head off disruption from below or orthogonal competition from out-of-sight?
- Which offer the largest and fastest revenue growth?
- Which lead to the best business model of the future?
- How can we use new data assets in disruptive revenue-generating models?
These are hard questions with few clear answers. Even after determining the optimal strategic direction, TMT companies must then choose among a wide range of inorganic growth paths to achieve their convergence goals, from traditional M&A to incubation, corporate venturing and partnerships.
Divesting to grow
With advancing technology constantly making new things possible, company building is no longer a straight-line pursuit.
The same innovation driving TMT M&A and partnering virtually guarantees that TMT company business strategy will continue to change. Companies must continue to evaluate their portfolios to determine which assets will be accretive to their future ambitions and which will not.
Recent EY research reinforced this idea, finding that fast-growing TMT companies performed capital budgeting processes more often, compared with both slow-growing TMT companies and fast-growing non-TMT companies.
In short, in the era of convergence and technological disruption, TMT companies need to regularly review their portfolios and be willing to take bold action based on the findings of those reviews.
New thinking for the future
Technology-enabled disruption, business model uncertainty, record-high equity markets and cross-sector convergence are in the nature of the TMT industries today. You can’t escape them.
Venture investment is seeding thousands of start-ups driving ongoing cycles of disruptive technologies, while private equity sponsors play an increasingly significant role in the TMT M&A landscape. Success accrues so rapidly in the world of TMT that companies not first or second to any market, risk irrelevance.
Meanwhile, the uncertainties make decision-making, especially around very large capital allocation decisions such as M&A, very challenging, indeed. What is more, TMT M&A success today sometimes means discarding the old merger integration playbook. Driving deal value at this transformational time requires new thinking and new approaches.