The dealmaking drivers and deterrents for fast-growing AMT firms

Our survey reveals that AMT companies still see M&A as a way to grow their businesses but there are challenges that must be overcome

Europe's fastest-rising AMT firms increasingly see M&A as the answer to their growth ambitions, but a number of obstacles stand in the way of dealmaking. On average, firms expect close to half (45%) of their revenue growth to come from acquisitions over the next three years, an increase on the 40% of revenue growth attributable to deals in the past three years.

Moreover, 39% of firms feel that acquiring new IP and technology will be one of the most important ways in which M&A and alliances will contribute to that growth.

However, businesses must be mindful of the challenges that stand in the way of such expansion strategies. Above all, it is the competition for the best assets that most concerns fast-growing AMT companies. While they are keen to pursue their growth with M&A, they are also conscious of paying too high a price in what has been a sellers’ market. More than a third of the businesses in this survey (37%) point to competition from other bidders as a strategic barrier. This percentage is far higher than any other sector in the survey and all sectors as a whole (26%).

One bright spot is the recent stock market correction. While uncertainty is rarely conducive to investment, especially among risk-averse corporates, a retreat in prices will be welcome for cost-conscious buyers and volatility will help reduce competition for assets – although this will also make sellers more reluctant to transact.

Legal and regulatory issues are also front of mind, which at 35% is the second most commonly cited challenge to M&A. In industries where consolidation has progressed the most, certain deals may now be catching the eye of competition and anti-trust regulators. Meanwhile, international deals, particularly with US and Chinese companies, are increasingly scrutinised on security grounds as governments become ever more anxious about losing AMT expertise and crucial IP.

In some countries, management now feel nervous about an uncertain political climate. A quarter of respondents to this survey from European AMT businesses cite this as a risk factor, which is almost certainly linked to Britain's impending withdrawal from the EU and its implications for the stability of the Union.

Despite these challenges, bidders stand a much better chance of succeeding with their growth strategies if they use deal teams which have sound transaction experience in the digital world. These bidders will be more competitive, less likely to miss the mark when it comes to valuations.