In our previous post we discussed how private equity firms are driving software acquisitions, with portfolio add-ons becoming increasingly common. Another reason for rising M&A activity within the software and AI space is sector convergence. In a bid to keep…
In our previous post we discussed how private equity firms are driving software acquisitions, with portfolio add-ons becoming increasingly common. Another reason for rising M&A activity within the software and AI space is sector convergence. In a bid to keep up with the pace of technological growth, non-tech companies are vying for strategic acquisitions that can enable a positive digital transformation and possibly open up new revenue sources and markets. Technology and business are no longer separate, and almost every industry is reeling from the effects of new, disruptive technologies. As a result, the IT sector has become one of the most sought after sectors for M&A activity, with acquirers from within as well as outside the industry prospecting for deals.
The retail, financial services and health sectors in particular have seen an uptick in tech M&A activity. Last month German reinsurance giant, Munich Re, acquired IoT startup Relayr in a deal worth USD300 million. Munich Re plans to leverage Relayr’s technological capabilities to develop new services and financial applications. Last year, in a bid to digitize, and in keeping with consumer demand, furniture retailer Ikea acquired Taskrabbit, a labour-for-hire service provider app. Similarly, Wal-Mart has been looking to inorganic growth as a means to supplement growth strategies, and has been on an aggressive acquisition spree, acquiring e-commerce players such as ModCloth and Bonobos. Investments in blockchain and digital payment solutions have been led by financial services firms. In December 2017, JP Morgan Chase acquired WePay for over USD300 million to provide payment solutions to its small business clients.
According to the Wall Street Journal, non-tech companies acquired nearly USD10 billion worth of venture-backed U.S. startups in 2016. This was twice the amount spent in 2015 and was also the highest value in five years. Given the dearth of tech talent, companies often prefer to buy successfully run startups rather than build new products from scratch in-house. According to Deloitte’s Future of the Deal 2018 report, nearly sixty percent of disruptive technology acquisitions last year were done by the non-tech sector. Such deals have driven spends of about $634 billion between 2015 and 2017, the report said.
Established global companies such as Campbell Soup and Kellogg’s, are now investing across sectors (both tech and non-tech) through established venture capital arms. Deloitte’s 2018 M&A trends report found that tech acquisitions are very likely to define the M&A landscape in 2018. Survey results revealed that acquiring technology assets was the primary driver of M&A, followed by acquiring new customer bases, new products and services, and strengthening overall digital strategy. With potential corporate acquirers across sectors showing a high degree of interest in inorganic growth through acquisitions in technology, 2018 is poised to see an even greater level of sector convergence through M&A deal activity.
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