Shaping digital convergence through mergers & acquisitions

Useful EIU / PwC survey findings and report on the opportunities and the pitfalls involved in digital convergence and mergers and acquisitions (M&A). This is an exhaustive survey of 149 executives supplemented with over 30 in-depth interviews of industry veterans. Key takeaways:

  • According to Dow Jones CEO Richard Zannino, “I’ve done 20 or 30 M&A deals, and one thing I’ve learned is never to rely on revenue synergies, because they never seem to materialise. No matter how great the brands, no matter how great the match, you’re going to lose some revenue in the process.” For this reason, says Zannino, “I put more weight on cost synergies, and that’s what makes up for the lost revenue.”
  • Many executives prefer partnerships and alliances as a less risky way to explore unfamiliar terrain. But there are shortcomings, including an inability to control relationships, either with customers or even with other parties in the alliance or partnership. And risk aside, alliances and partnerships may also move too slowly to capitalise on fast-moving opportunities. By failing to place a significant bet, executives realise, their companies may fail to maximise the convergence payoff.
  • But for those organisations choosing the M&A path, the warnings from the research are clear. Be certain you’re pursuing a realistic strategy-and then compare the value of that strategy versus the acquisition price. Markets today are heating up and few if any strategies in the history of business have been pursued successfully at any price.
  • Which sectors do technology, media and telecom executives believe will become the overall winners in digital convergence?
    1. Entertainment content developers (42% respondents)
    2. Consumer electronics manufacturers (36%)
    3. Wireless operators and related service providers (30%)
  • As for the role of mergers and acquisitions amid the many likely success stories, the last word goes to a CFO from a large, US-based high-technology company: “We know a lot of companies are going to stumble badly, but a lot more are going to do really well. I’d have to say strategy is important, but in the end, it’s all in the execution. A great strategy, poorly executed, is a waste of everyone’s time and cash. But a decent acquisition, well executed, with loads of cost synergies, can generate enormous returns. So in M&A, all you need is a good idea-not even a great idea but a good one-coupled with great execution and you can achieve amazing results.”

Also, a useful side-bar on “How to make a strategic alliance work” on pg.21.

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