You may be familiar with a parent's teaching to "share" with others – "sharing is caring". This teaching has been a part of our economic system throughout history; bartering and sharing of goods is not a new concept. However, in recent years, "sharing" has entered the marketplace in new and innovative ways, primarily by facilitating elaborate peer-to-peer networks. Many businesses rely on the concept of collaborative consumption to create value for shareholders, and have been highly successful in doing so. Some of the sharing economy pioneers include Airbnb, Uber and Spotify.
The sharing economy is a socio-economic ecosystem that is supported by the sharing of human and physical resources. Companies in the sharing economy unlock the potential of underused assets. As a result, the sharing economy has recently received acolytes from industry experts. In 2011, collaborative consumption was named one of TIME Magazine's greatest ideas that will change the world. The Ontario Chamber of Commerce, in Harnessing the Power of the Sharing Economy, states that peer-to-peer networks have the potential to become a significant segment of Ontario's future economic activity. According to the Consumer Intelligence Series: The Sharing Economy, published by PwC in April 2015, there is a significant and growing appetite for business opportunities in the sharing economy.
With its many benefits and minimal barriers to entry, it is likely that we will witness an increase in the number of businesses participating in this sphere. With this growth, come positive implications on M&A.
Zipcar Inc. is a recent example of a "sharing" business that achieved the mark of success of many start-up companies; Zipcar Inc. was bought out by and earned $173.4 million in an IPO in 2011 and was subsequently acquired for $509.9 million in 2013.
Despite the potential growth in the sharing economy, investors and purchasers must remain aware of its potential risks. Firstly, trust is an integral element of the sharing economy. Unfortunately, this social sentiment is difficult to transfer. Courts have historically barred the transfer of contracts that are of a personal nature (Warner Bros Pictures v Nelson, [1936] 3 All ER 160). This makes for potential complexity and increased risk in the event of a change of ownership. Further, many of the industries where these businesses operate remain unregulated. For example, the hospitality industry is subject to a large amount of regulation, escaped by companies such as Airbnb and Couchsurfing. Although deregulation may spawn an environment for merger, it increases the risk of encountering a litigious business environment.
The greatest inhibitors to this potential source of M&A are the risks associated with the unaccustomed legal system and the potential for liability. So long as businesses in the sharing economy are able to effectively combat these risks, it is likely that we will witness an increase in M&A activity as a result of this new-found and highly accessible niche.
The author would like to thank Lauren Day, articling student, for her assistance in preparing this legal update.
Norton Rose Fulbright Canada LLP
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