M&A is not new news. Convergence throughout media and technology segments crosses our newsfeeds on a daily basis. And we are going to continue to see further acceleration of global M&A activities throughout these segments. Our latest report provides abundant detail as to the whos, whats and whys.
What's fascinating to me, though, is not the pace or the growth of convergence, but the consistent gap I see in these activities—most notably for integration. When it comes to convergence in the digital media world, integration has become one of the biggest challenges and missteps for both buying and targeting companies. The findings of our report further support this notion and show that while there is consensus that integration exists as the primary concern for organizations conducting M&A, the majority of interviewed executives rarely cite it as a priority in their due diligence process. This imbalance highlights a significant missed opportunity for companies to fully understand a vital component for a given deal that can frankly make or break success in the long term.
When it comes to a transaction itself, the stakeholders involved in the deal are most often not the same stakeholders as those in the actual execution of operations. For buyers, teams of corporate development and strategy, finance and legal stakeholders shake hands at the close of a deal, and then they are off to the next opportunity. As our report shows, integration is not prioritized despite the level of risk it brings to the success of the investment or acquisition.
Inherently, start-up cultures thrive on risk-taking, testing, failing/learning—all towards a spirit of innovation and growth. And historically, traditional conglomerates fear risk due to the potential broader impacts and ripple-effects of failure, and are structured with a level of governance and steering committees that include various stakeholders to vet and approve any new idea. Seasoned executives are incredibly talented and have seen success in the business models and structure that have been fairly consistent for the past few decades. But we are seeing more and more executives increasingly resistant to embracing the massive technology disruptions that are significantly changing the business models and structure of their industry. Digital transformation of the media industry is hard work. Organizational structures, work flow, incentives, and leadership all need to be aligned to embrace innovation and a digital speed-to-market. Furthermore, cross-border acquisitions add another layer of complexity to the mix. These are times of big risks, insecurity, and unknowns. So when these companies come together in M&A, many buyers are finding digital talent running for the next start-up. Talent is lost. Momentum is lost. And the potential to 10x that investment is lost.
Without a doubt, inorganic growth is fundamental and should continue at a robust pace in order for the media and technology markets to evolve. However, changes need to be made to better position buying companies to find success in optimizing their investments. Integration considerations should be assessed during due diligence, factoring in company cultures, leaders and influencers, success/growth factors and levers, as well as smart earn-out structures. Integration planning should be well under way once a transaction is closed, with objective facilitators to guide the process with the integrating companies. Integration doesn't always mean the folding in of people, products, processes, and technology. Smart integration often can mean a hands-off approach. But whether it be a loose or tight integration, an integration strategy factors in accurate communications across all levels of the company, setting expectations and having integrity in the execution of the integration—based on and led by the objective understanding of success factors in development products/assets, team culture, and company values for both integrating companies.