Collaboration crucial in fast-moving world of tech
Europe’s fastest-growing companies operating in the advanced manufacturing and technology (AMT) space are turning to other forms of collaboration outside of mergers and acquisitions (M&A).
New research conducted on behalf of Pinsent Masons found many fast-growing AMT businesses are developing rewarding new partnerships as they seek to grow revenues and reach full potential.
Our latest AMT Pacesetters report, in conjunction with Mergermarket, found that, in the last three years, 89 per cent of the businesses surveyed have invested in minority stakes as a strategy for growth. Nearly half pointed to automation as a key technology that will grow their business in the next three years and 42 per cent said big data analytics (including artificial intelligence) will be a key investment in securing future growth. Alternative types of collaboration have also been popular, with 60 per cent of businesses saying they had entered licensing and franchising agreements in the past three years and 58 per cent entering equity joint ventures.
This reinforces the position that Europe’s fastest-growing AMT companies are among the most innovative and exciting in the world. They are achieving rapid rates of growth, scaling more quickly than their competitors and creating new economic value at pace. These businesses are marked out by a determination to innovate, seeking new technology, talent and tools to constantly renew their products and service offerings.
The rapid pace of technological development sits at the core of the changing dynamic in the sector. It is forcing these businesses outside of their comfort zones. As a result, they are collaborating and pulling together previously distinct disciplines and binding them in to something new. Taking a minority stake in another business enables firms to achieve specific goals without having to commit to a full deal. While new forms of alliances are to the fore, M&A activity will become more significant, with 45 per cent saying they expect growth to be achieved in this way over the next three years, an increase of 5 per cent over the previous three years.
These companies realised a long time ago that to be successful they need to collaborate with a wide range of third parties, including those that may be considered competitors. The operating environment is constantly evolving and partnerships with other companies are key in enabling them to navigate challenges, access new technology and innovate.
It is heartening that 43 per cent of these companies feel setting up autonomous research and development (R&D) teams within their enterprises has delivered the greatest innovation benefit. It will be R&D that fuels their value and, ultimately, drives M&A too.
The survey revealed new drivers for dealmaking, with 49 per cent of companies prioritising alliances as a way to help them expand into new product lines, representing an increase of almost 15 per cent. In addition, 41 per cent now expect to use alliances to expand into new geographies, up from 33 per cent.
This is an interesting departure, as on one hand these businesses are focusing on their core business, but, on the other, we are seeing an increasing desire to expand into adjacent markets whilst also building on the disruptive elements within their own businesses.
The report also found that nearly 40 per cent of AMT businesses pointed to competition from other bidders as a strategic barrier to M&A, significantly higher than other sectors.
Growth through alliances is not without its challenges. However, the key factor here is that companies understand what they are and look for ways to overcome them. It is clear that the human elements of collaboration and trust are central to the growth of these companies as they look to evolve in an environment of rapid change and disruption.
Andrew Mcmillan, corporate partner at law firm Pinsent Masons.
The rapid pace of technological development sits at the core of the changing dynamic