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PwC Explores Digital Convergence M&A

The pursuit of digital convergence, and the resulting urge to merge, will likely bring about the next boom in the technology industry. Executives have learned from the last bubble and are approaching the current round of mergers and acquisitions more strategically, according to PricewaterhouseCoopers� �Technology Executive Connections� report.

CEOs have not forgotten the lessons of the dot-com crash � but there are key differences between then and now. For one, the early tech boom was built on promised results that, in many cases, never materialized. The current rash of development is built on concrete products and commercially viable offerings, the report notes.

Digital convergence is the effort to bring together computer, phone, recording and broadcast technologies within an all-digital environment enabling new, flexible uses of products and services. The pursuit of digital convergence is leading to increased corporate consolidation, with no sign of let up.

Approximately 64 percent of the 149 technology executives surveyed for PricewaterhouseCoopers� report expect the consolidation trend to continue over the next three years. CEOs surveyed by PwC fully expect a few flops and are treading more warily as a result. Forty-one percent of respondents anticipate major corporate failures, perhaps stemming from companies that reach too far beyond their strongest skills.

Survey participants listed software developers are the most likely target for acquisition (49 percent), followed by business information content developers (40 percent), wireless companies (19 percent), entertainment content developers (18 percent) and consumer electronic device makers (15 percent).

Many of the smaller companies questioned were apprehensive of M&A initiated by larger entities, fearing a loss of their entrepreneurial independence and spark. At the same time, they recognize that their size does not always grant them the final say in these situations.

Survey respondents noted that alliances and partnerships are viable and sometimes preferable alternatives to M&A. Almost half of CEOs surveyed (46 percent) felt that digital convergence revenue was most likely to be generated from these types of collaborations. Only 28 percent of CEOs placed M&A at the top of that category, and 52 percent actually prefer alliances to M&A. Partnerships often offer less permanent financial risk to a corporation, although alliances may also move too slowly to capitalize on a fast-moving opportunity.

The winners in digital convergence take a cautious but quick approach to M&A. Careful consideration and strategizing is a necessity � decision-makers must consider a deal from many angles. These points of examination include the culture of the possible acquisition, likelihood of retaining key staff members, cost balance effects and how the market would value the deal. Companies that then integrate quickly report more favorable productivity and profits.

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