Translink’s 2024 Trends Report Unpacks Industry Hybridisation Megatrend

Is Tesla an electric vehicle company or a data company? In the evolving M&A landscape, cross-hybridisation, predominantly fuelled by the growing demand for data and technology, is blurring industry boundaries, according to Translink Corporate Finance’s ‘2024 Megatrends Report’. Featuring insights from global Translink partners, the report identifies six top trends that will shape the M&A landscape in 2024 and beyond. One of the trends points to increased convergence as companies vie to possess ‘the new oil’ – data, a considerably valuable currency in the contemporary business paradigm.

Industry hybridisation highlights discussed in the report include:

• Technology as the catalyst in M&A: Technology is revolutionising the M&A space, prompting companies to seek innovative solutions and expertise outside their traditional sectors. This trend leads to cross-sector hybridisation, where firms in various industries are merging to stay competitive and relevant.
• Redefining traditional industries: Integrated technology and data are blurring industry boundaries. For instance, Tesla is portrayed as more than an electric vehicle manufacturer but also as a significant data collector, providing valuable information for other sectors. Similarly, wearable technologies like Garmin watches have evolved beyond their conventional uses, now serving as health monitoring tools and attracting interest from healthcare sectors.
• Diverse benefits of cross-sector M&A: There are several advantages of cross-sector acquisitions, including innovation and diversification, access to intellectual property, enhancement of customer experience, and new opportunities for data monetisation. These benefits underscore the strategic value of such mergers in accessing new capabilities and markets.
• Data as a key driver: Data is crucial in modern business, driving M&A activities. Harnessing and analysing data from various sectors allows companies to improve operations, offer personalised services, and expand into new markets. However, the evolving landscape of data privacy and ownership poses challenges that companies must address.

John Blake, Partner at Translink Corporate Finance South Africa, unpacks a series of unique 2024 industry hybridisation trends. Blake says, “The cross-sector hybridisation trend in M&A signifies a fundamental shift in how companies view growth and innovation. As industries become increasingly intertwined through digital transformation, the barriers separating sectors are breaking down. The future of M&A will undoubtedly be shaped by those who can leverage technology and data to their advantage, forging new paths and creating innovative solutions that span various industries.”

Technology as the catalyst

Translink says technology has been a game-changer in the M&A landscape. The digital revolution has redefined competition rules and introduced new dimensions to traditional industries. As a result, companies are now seeking opportunities to harness emerging technologies and innovative solutions. By acquiring targets in other sectors, organisations can access the expertise and capabilities they need to remain competitive and relevant.

Blake says, “Most cross-sector hybridisation is driven by technology and data, which have become integral parts of many other established industries. Returning to the Tesla analogy – this is a data company. Every Tesla has a black box measuring driver behaviour, which is valuable data for insurance, marketing, and retail companies.

Another example is the traditional watch concept, which has transformed significantly in the realm of wearables. Devices like a Garmin watch function as health monitoring tools, providing real-time updates on vital health metrics to healthcare professionals. This evolution has spurred medical insurance companies to actively seek collaborations with watch manufacturers, recognising the potential of these devices in enhancing healthcare monitoring and management.”

Translink’s report indicates that as technology and data become intertwined and integral, they offer an entirely new dimension, which makes them attractive to non-traditional buyers, such as:

• Innovation and diversification: Cross-sector acquisitions provide fresh perspectives and innovative solutions for companies. For instance, a traditional manufacturing firm may acquire a technology startup to stay ahead, tapping into expertise not readily available within its sector. This leads to product diversification and the ability to offer customers new and exciting solutions.
• Access to intellectual property: Intellectual property is often a driving force behind cross-sector hybridisation. Technology companies may seek to acquire entities in the pharmaceutical sector to access valuable patents or research, and pharmaceutical giants may acquire technology startups with cutting-edge software or data analysis tools. The transfer of intellectual property can significantly benefit both parties.
• Customer experience enhancement: Technology has transformed customer expectations. E-commerce giants, for example, might acquire traditional retail brands to enhance the in-store and online shopping experience, blending digital innovation with brick-and-mortar expertise to create a unique and competitive edge.

Data as the enabler

Translink says data has become the lifeblood of modern business, and the ability to harness and analyse it is a crucial driver of M&A activity. Cross-sector acquisitions give companies access to new data sources, analytical capabilities, and insights they might not have otherwise obtained.

• Data monetisation: Companies have realised the value of data monetisation. Cross-sector deals allow them to tap into new data sources and analytics expertise, enabling them to refine their operations, improve decision-making, and create new revenue streams.
• Enhanced personalisation: Data-driven insights from cross-sector acquisitions empower companies to deliver highly personalised customer experiences. For instance, a financial institution acquiring a healthcare data analytics firm can leverage patient information to offer tailored insurance and investment products.
• Market expansion: Data analytics is essential to understanding markets and customer behaviour. Companies acquiring businesses in different sectors can utilise data to explore and expand into untapped markets, leveraging insights and strategies that might not have been possible within their original sector.
• Shifting regulation: Companies are constantly harvesting a proliferation of data about consumers. However, there is still a significant gap in understanding data ownership and usage rights, leading to intense competition among companies seeking access to this valuable information. On a global scale, there is a growing focus on data privacy, marked by stringent regulations. Individuals must now provide explicit consent to entities using their data, underlining the increasing emphasis on safeguarding data privacy. The question arises: if it’s an individual’s data, shouldn’t companies compensate them for it? Changing data ownership laws will inevitably impact deals going forward.

Industry hybridisation challenges and considerations for CEOs

While the cross-sector hybridisation trend offers promising opportunities, Translink’s report highlights that it is not without its challenges. Integrating vastly different businesses with diverse cultures, processes, and regulatory requirements can be complex.

Translink says when acquiring a target outside of one’s customary experience and sector, CEOs must thoroughly understand the acquisition’s nature and purpose before conducting due diligence. Clarity on what they are acquiring and the underlying rationale behind the purchase is essential because this understanding lays the foundation for effective post-acquisition value capture strategies.

Another imperative is the need for a meticulously defined vision regarding the value proposition of the target company and a well-thought-out strategy for its seamless integration.

“CEOs must ensure the target aligns with strategic objectives before committing significant financial resources. Subsequent due diligence validates the initial intent behind the purchase, refining integration plans and meticulously auditing the value capture strategy in alignment with the target company’s profile. At Translink, we stand at the forefront of this evolution, partnering with our clients to help them identify and capitalise on the emerging industry hybridisation trends that enable them to thrive in this dynamic and interconnected business landscape,” concludes Blake.

Read the full Translink 2024 Megatrends Report HERE