A new agenda for M&A: an innovative pathway towards skills acquisition
Innovation is increasingly shaping the M&A growth story in Australia.
Where traditional M&A may look to incorporate one organisation into another’s traditional line of business through a change of control, the nature of M&A deals is changing with companies increasingly looking at innovative and alternative ways to enter new markets or acquire new skills and direction.
As core lines of many mature businesses slow in the domestic market, companies are increasingly looking towards alliances and joint ventures ahead of more traditional mergers and acquisitions. New markets offer strong growth prospects but carry proportionately high risks. To date, Australian companies have been hesitant to dive in alone, preferring to collaborate with partners and overseas counterparts in a bid to create value whilst offsetting the additional risk.
It is unsurprising that companies are looking to gain a foothold in emerging markets, however the tremendous growth opportunities that geographies like China and India provide are accompanied by distinct cultural, legal and regulatory differences. Even assured Western organisations can struggle to establish themselves in unfamiliar markets. Resultantly, many have developed strategic partnerships with local companies to help deliver their brands and products more smoothly into largely unknown business territory.
Within these environments, choice of partner and clear communication are key. It is critical that business strategies are aligned and that expectations are transparent; even more attention is required when considering intellectual property (IP), its value and how it is shared. Despite the challenges, conservative boards tend to view these partnerships as a better fit for their risk frameworks.
In parallel, companies are increasingly seeing M&A as a quick means to capture new skills, innovation and disruptive technology, which are often hard to implement organically alongside traditional business models. Disruption has presented businesses with a swathe of new challenges and in turn organisations are adopting new growth opportunities as a means to address them.
Whilst increasing in frequency, M&A activities in the pursuit of innovative growth still represents a very small proportion of total M&A spend – and for good reason.
It is often the case that large, established corporations have markedly different business and decision making processes to their smaller, more innovative counterparts. Whilst there may be considerable upside to effectively integrating an entrepreneurial business into a larger body, it’s an incredibly complex result to achieve.
When faced with these challenges, it is understandable that many potential deals fall through; particularly when there remains an option to invest funds that would otherwise be used in M&A to foster internal innovation. It is a choice that many businesses continue to grapple with.
Many organisations have struggled to deliver innovation internally and are seeking new ways to drive growth and remain relevant as their markets and services become disrupted. Despite the risks involved, this new agenda for M&A is not going away anytime soon.