TMT Deal Doing for Generation Z - by Pinsent Masons

By Andrew McMillan, Partner, Pinsent Masons

We have explored the factors that set Europe's fastest-growing TMT companies apart from the rest and have found that collaboration, in all its forms, is one of their key bedrocks for growth. We are seeing a departure from traditional M&A as companies seek to find new ways to collaborate. In particular, we are seeing fast-growing TMT companies acquiring minority stakes in other businesses in order to maintain their competitive advantage. This could be described as 'deal doing for Generation Z'. It is not something that we have seen before on this scale.

With a result higher than in any other sector which we surveyed, we found that nearly 90% of TMT businesses surveyed, had invested in this way over the past three years. TMT businesses frequently need to make bets on emerging technologies and, in some cases, on new types of business model, and these less formal arrangements align with the nature of the sector and allow them to experiment without having to commit to a full deal. These businesses are able to achieve specific goals without committing to a full acquisition. It may be that in the long run, these alliances lead to acquisitions but, equally, should business synergies fail to materialise, they can run their course and end in a disposal or buyback of the relevant stake.

Licensing and franchising agreements have also been popular with TMT companies over the past three years, with over 60% entering into them and 56% entering into equity joint ventures. Increasing levels of collaboration are being driven by the rapid pace of technological development. In direct response to this, businesses are collaborating with a view to pulling together previously distinct disciplines, market insights or technologies, to create something new. Businesses are pushing themselves to change, develop and grow; often outside their comfort zones.

According to these companies, automation and big data analytics are their priorities for investment in the next three years, with 42% and 36% respectively, saying that this will be their focus. It will be interesting to see the interplay between these priorities and whether collaborative models prove to be a key part in enabling that focus.

What is clear is that these companies are among the most innovative and exciting in the world and collaboration is enabling them to achieve rapid rates of growth and scale more quickly than their competitors.

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