Minority stakes can help fast-growing businesses to access talent; reach new markets; invest in new products or access new technologies without having to commit to a full merger according to corporate law expert Andrew McMillan of Pinsent Masons.
A survey of companies in the advanced manufacturing and technology (AMT) sector found that 89% of the fastest-growing companies in Europe have acquired a minority stake in another company in the past three years. The firm's Pacesetters Report on AMT said that this was a higher figure than for other sectors, demonstrating the increased impact that changing technology has on AMT companies' activity.
"The rapid pace of technological development sits at the core of the changing dynamic in the sector," said McMillan. "It is forcing these businesses outside of their comfort zones and pushing them to be more adventurous than they have previously been. As a result, they are collaborating and pulling together previously distinct disciplines and binding them in to something new."
"Taking a minority stake in another business enables businesses to achieve specific goals without having to commit to a full deal," he said. "Europe's fastest-growing AMT companies are among the most innovative and exciting in the world. They are achieving rapid rates of growth, scaling more quickly than their competitors and creating new economic value at pace. These businesses are marked out by a determination to innovate, seeking new technology, talent and tools to constantly renew their products and service offerings."
AMT companies have said that they are increasingly reliant on alliances to grow their business and expertise. 49% of the companies said that alliances would help them expand into new products and 41% said alliances would help geographical expansion, a significant increase on previous surveys where the figures were 34% and 33%.
"This is an interesting departure, as on one hand these businesses are focussing on their core business, but on the other, we are seeing an increasing desire to expand into adjacent markets whilst also building on the disruptive elements within their own businesses," said McMillan.
AMT companies are reliant on innovation and the survey found that setting up their own research and development units provided the greatest return on innovation investment for 43% of companies.
Alliances are not always easy though, the research found. Competition for the best assets and deals was the major barrier to mergers and acquisitions activity for 40% of the companies surveyed. For all sectors that figure was only 26%.
McMillan said: "These companies realised a long time ago that to be successful they need to collaborate with a wide range of third parties, including those that may be considered competitors. The operating environment for these businesses is constantly evolving and partnerships with other companies is a key factor in enabling them to navigate challenges, access new technology and innovate within their businesses."