BCG 2017 M&A REPORT: THE TECHNOLOGY TAKEOVER

  ©Colombia Business School

©Colombia Business School

Tech is not just for tech companies anymore. Nearly every industry has been affected by digital and mobile technologies disrupting their market and no company can afford to ignore the impact of technology, starting with supply chains to customer engagement, and continuous with even more advanced technologies, such as Artificial Intelligence and the Internet of Things. The question is, how do companies rapidly access the technologies that can advance their businesses and integrate them successfully with their current operations?

Though the overall M&A market has grown significantly over the past five years, the share of deals involving a tech target has been rising even faster. Today, one out of every five transactions has a clear link to some form of technology. Whilst major deals, such as the acquisition of LinkedIn by Microsoft and WhatsApp by Facebook are hard to ignore, many smaller sized transactions go by unnoticed. In fact, little is known about the underlying drivers in this booming market when it comes to the key players, their motivations, and the current trends and valuation levels.

Whilst BCG Digital Ventures offers to develop, build and scale technology solutions for big corporations, there is still an increasing number of organizations that prefer to buy rather than to build. Acquisitions of high-tech targets have become an instrument of choice for buyers in all sectors looking to boost innovation, streamline operations and processes, shape customer journeys, and personalize products, services, and experiences. According to the 2017 Boston Consulting Group M&A Report, high-tech deals represented almost 30% of the total $2.5 trillion of completed M&A transactions in 2016, out of which 70% of all tech deals in 2016 involved buyers from outside the tech sector.

Two macro factors that have greatly effected this development have been the low growth in mature economies and cheap money. As organic growth is hard to achieve, companies see the potential M&A offers to achieve higher revenues and to increase market share. At current borrowing rates, at least in developed markets, acquisitions are easily and inexpensively financed. Though, BCG is expecting an expiration date to the latter. Whilst the European Central Bank is continuing its low interest rate, the US Federal Reserve has started to slowly increase theirs. 

As the term "digital disruption” moved from a tech-only term to the C-Suite boardroom, senior executives have to figure out how to position their companies in a highly disruptive ecosystem. It is a question of whether to create a disruptive solution internally or acquiring the know-how. More often than not, acquisitions of tech-driven and digital business models have become the instrument of choice to implement needed technologies, capabilities, and products, as way to close innovation gaps. However, deals involving technology targets differ in many respects from traditional M&A transactions. Not only do valuations remain high, due to inexpensive financing and increased competition for targets, but tech deals require close attention to the post-merger integration and how the existing buyer's strategy overlaps with the one of the target.