A survey of 400 of western Europe’s fastest growing businesses in the advanced manufacturing and technology, financial services, energy and infrastructure sectors found that 40 per cent of the companies had identified alliances and joint ventures in their top three most important drivers of growth over the last three years. This trend towards collaboration through alliances and joint ventures reflects an increasing focus on partnership rather than control, where deals are conducted on a grown-up basis with both sides looking to work together.
Traditionally, businesses needing to get beyond organic growth have looked to mergers and acquisitions (M&A), but the options for collaboration and alliance are much wider today. They often provide a means to experiment with innovation and transformation without making irrevocable decisions. This is all about seizing the best opportunities in a very broad landscape, and doing so with scale and speed.
The “Pacesetters” study, conducted by MergerMarket on our behalf, selected 100 companies from each of the advanced manufacturing and technology, financial services, energy and infrastructure sectors to include in the study based on growth rate criteria. Of the businesses selected, 177 were private equity backed, 133 privately owned, and 90 publicly listed.
Europe’s fastest-growing companies drive job creation, generate additional tax revenue and provide new opportunities for a broad range of stakeholders. Despite playing this vital role, we know comparatively little about the make-up of these businesses - specifically, the skills and qualities that enable them to leave the pack behind.
Our research identifies three characteristics that are shared by many of the businesses posting the highest growth rates in Europe: collaboration and alliances with other companies, innovation, and a sense of purpose. We would argue that other businesses plotting a growth strategy for the years ahead would benefit from understanding what has enabled these pacesetters to succeed.
According to the report, 82 per cent of pacesetter companies have acquired a minority stake in another business in the last three years, while 65 per cent have entered into licensing or franchising arrangements, and 60 per cent have embarked on an equity joint venture.
In the next three years, 43 per cent of Europe’s fast-growth companies expect to be involved in an M&A deal, and around half of these will be motivated by a desire to increase their market share, acquire intellectual property or access new technology. The potential to expand into new product lines or geographies was also a key driver.
More than half of respondents believed investing in and using technology effectively will be among the top three most important growth factors over the next three years.
An unprecedented number of fast-growth companies are engaging in minority investments and alliances, granting them exposure to a market without taking the full risks incurred through a traditional acquisition. By engaging in partnerships and alliances, companies can access new technologies, platforms, customers and, in some cases, entrepreneurial management teams.
This could be termed a “try before you buy” approach to M&A that allows both parties to assess each other and decide whether to progress with a more permanent arrangement. This enables companies to be agile and move quickly to take advantage of opportunities as they arise. The business landscape is changing quickly, and this dictates that players within the market have to move faster if they want to be successful.
- Barry McCaig, partner and head of corporate, Scotland, at Pinsent Masons.