Key M&A Drivers in the IT industry
A key M&A catalyst in the sector is the requirement for a ready-made solution for a desired business model transformation: let’s take the sample of Withings, acquired by Nokia. The motivation was to enter into the growing market for health related IT products, by acquiring a specialist in connected health devices. Any move for electronics equipment vendors to be at the heart of smart connectivity will be a key differentiator to deploy in the tele medicine infrastructure market.
New Market Entry
Compensation for late entry into an emerging market remains a key driver of M&A for large IT companies, even if they possess significant R&D resources to develop new capabilities internally.
Companies such as Oracle and SAP have recently acquired strategically placed players in the cloud computing, sector, including Concur Technologies, Success Factors & Ariba, in order to gain an immediate foothold in the market.
The use of strategic acquisitions to obtain disruptive or revolutionary innovations continues to be a source of deal activity in the sector, with Google’s acquisition of mobile payment platform provider Softcard an example of this.
In addition, M&A that can provide access to support services for a new technology inevitably emerges following seismic innovations. This was seen with Ingenico’s acquisition of Nera Payment Systems. The deal significantly bolstered Ignecio’s ability to provide customer support for online payments.
To take advantage of globalization in the IT services industry, major US and European players have looked to acquire Asian based providers, in an attempt to compete with the lower cost bases of Indian rivals such as Tata and Infosys.
Additionally, the willingness of vertical software providers to use M&A in order to enter new international markets and circumnavigate logistical and political difficulties of cross-border organic expansion continues to be a core rationale for corporate activity in the sector.
These drivers will continue to fuel sector activity in the mid-term and with the global economic recovery continuing, there remain numerous opportunities for significant returns on investment from acquisition related activity.