Technology, media and entertainment companies are looking to expand into each others’ businesses, but Washington is the main obstacle that is holding convergence back.
A third of U.S., European and Asian firms surveyed by law firm Reed Smith said legal and regulatory barriers were the biggest challenge to completing an acquisition.
The regulatory environment only gets thornier when firms look to grow in other countries. Europe, for example, has stricter rules for data collection and consumer privacy.
According to the survey, technology, media and entertainment companies inked $34.5 billion in cross-sector deals last year, up 11 percent from the previous year. The number of transactions also grew, with 326 deals in 2014, a 52 percent increase over the previous year.
Most of the deals are in technology, accounting for 48 percent of the transactions between 2014 and 2015.
Despite the regulatory challenges, Reed Smith predicts future convergence activity will continue with technology firms looking to grab more content (61 percent) or advertising (58 percent), and media firms looking to have more control and manage data, analytics, and digital distribution platforms.
For example, News Corp. bought, for undisclosed terms, digital data firm VCCircle while Google is in talks to buy inMobi, a mobile advertising company.
“Companies are working out how to deliver and make money from content,” says Michael Young, Reed Smith corporate partner, London. “And technology companies are working out what content they need to have. The market is asking itself questions such as: what is the right level of advertising to pair with ad-supported content which is free to the consumer, and what is the right price point for content available on an ad-free subscription model? And how do we make money with all the new devices?”
To help deals proceed more smoothly, Reed Smith advises companies to become more involved in public affairs and trade associations, and to design products and services that can adjust to regulatory changes quickly, for example, as in the ever evolving data protection laws.