The year 2017 has been quite robust for the global mergers and acquisitions (M&A) market. The announced transaction volumes in 2017 stand at $3.7 trillion. However, the number is slightly on a lower side if one compares that with the transaction volumes of $3.8 trillion in 2016. Still the trend can be termed robust if the significant global geo-political instability is taken into consideration. However, more than strong numbers and buoyant market sentiment, it’s the emerging trends which will define the M&A landscape in years to come. So, trend analysis is as much important as number-crunching.
The most recognisable game-changing trend which has emerged in 2017 is that the technology acquisition has become the most evident drivers in M&A. There are few other prevalent drivers or strategic objectives which usually lead to the decision to go for M&A such as enhancing customer base in existing markets, expanding as well as diversifying products and services, strengthening digital strategy and acquiring talents.
But of late, technology has become the key driving force behind the majority of the M&A — be it Verizon acquiring Yahoo, Cisco acquiring AppDynamics or Apple buying Shazam. Another notable development is that the technology acquisition has led to tech convergence where more and more non-tech companies are buying technology firms.
As per a report, non-tech companies acquired technology firms worth $128 billion in 2016 as against $13 billion in 2013. With digital technology, mobile technology, Internet of Things (IoT), Artificial Intelligence (AI) playing a pivotal role in helping companies achieve quality in production and service output, operational efficiency and profitability, the tech M&A will only grow from here.
In fact, technology acquisition and digital strategy together will form a force to reckon with as both take up a third of all the deals pursued in 2017. In fact, the digital M&A will also become quite important as more and more companies are now keen on having a strong their digital strategy in their corporate strategy eco-system. As a result of that emerging trend, the tech deals have been growing at a rate of 9 per cent year-on-year since 2012.
Equipped with strategic digital M&A, the companies should work towards spreading the digital know-how across the organisation with a view to scale business. Thanks to digital M&A, companies will be able to integrate new elements into their business eco-system rapidly and effectively. Just like a Swiss army pocketknife, the company going for a smart digital M&A will gain multi-utility effect. Having said that, successfully acquiring a digital disruptor through M&A is just the beginning of the journey. The business foresight actually makes the journey productive.
It’s also quite interesting to note that the quest to access technology rapidly is actually fuelling the tech and digital M&A. The companies are nowadays looking for buying technology rather than building technology. Although technologies such as artificial intelligence, blockchain and augmented reality are still in a very early stage of innovation cycle and lack a carefully defined business model, they will prove to be strategic investments to the buyers looking to augment their existing product lines or hit the next growth cycle.
As a natural outcome of the growth in tech and digital M&A, the M&A-related activities will increase in the data and cyber security. The instances of hackings and data vulnerabilities will actually prompt companies in the tech segments and buying to look for solutions which will help them improve their trust and reliability. So, we can expect to see further consolidation and deals in this subsector.
The lure of M&A is so strong that some companies have started using non-spreadsheet-based M&A technology which is helping them reduce conflicts during the acquisition, costs of the acquisition and time for finishing the deals — the three key factors that make deals work.
And industry and sector convergence will emerge as the prominent theme of M&A going forward, albeit with a strong bias toward vertical integration. The concept of convergence has worked well for energy and construction, retail and technology, to name a few. Now it’s time for the technology sector to look at the idea of M&A-driven convergence more seriously.
( The writer is founder & MD, Singhi Advisors)