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Digital transformation spurs tech M&A to close in on record

Marc Ferranti | Dec. 9, 2015
Mergers and acquisitions let companies keep up with the pace of innovation

atm cash machine money
A person takes money from a cash machine Credit: Tax Credits

The digital transformation of business via cloud, mobile and big data technology is fueling IT mergers and acquisitions, which are set to rocket past the record level set back in 2000 as the dot-com era crested.

Enterprises are adopting cloud and mobile technology to stay competitive, and technology companies are scrambling to keep up with demand. Through the end of October, the value of publicly disclosed technology-related mergers and acquisitions  globally was US$396.4 billion, virtually assuring that 2000's record of $412.4 billion will be exceeded, according to Ernst & Young (EY).

This year's blistering pace in M&A is likely to continue, according to executives polled by EY. Forty-five percent of tech executives surveyed plan to actively pursue acquisitions in the coming year, according to its "Capital Confidence barometer - Technology" report, published Tuesday. That number is higher than in the last three surveys launched in the same third-quarter period, EY said.

"While digital disruption is not a new story, we have clearly entered a new chapter in its impact on M&A" said Jeff Liu, global technology industry leader for transaction advisory services at EY.

"We don’t think innovation can happen quickly enough organically; we're in a window where M&A is the best route to achieve that transformation," Liu said.

M&A is one way for tech and non-tech companies alike to keep up with the pace of innovation, and 80 percent of tech executives forecast that global M&A will thrive in the next 12 months, according to the EY report.

Digital transformation is affecting corporations in different business areas, according to EY. "Data centers and networks are becoming software-defined; server, storage and and network hardware are converging; mobility is changing enterprise application development models," according to EY. "Perhaps the biggest ongoing transformation of all is the move from corporate data centers to public and hybrid clouds."

The third quarter of the year set a seventh consecutive post dot-com bubble record for technology deal volume, with 1,069 publicly disclosed mergers and acquisitions, according to EY.

New customer behaviors, more than any other category, were cited by 46 percent of tech executives polled as driving IT vendors to buy non-tech companies. For example, Liu noted, IBM announced in October that it would buy Weather.com and other digital assets from The Weather Company for its Watson IoT Unit and Watson IoT Cloud platform. IBM's Watson cognitive computing services are embedded in a diverse set of the company's analytics offerings.

Many old-line industrial companies and businesses in traditional, slow moving sectors like agriculture, oil and gas, are snapping up analytics as a way of improving margins, Liu noted. "They've cut expenses, laid off staff and flushed all the excess costs out of the business and now they are doing predictive analytics to optimize logistics, inventory and systems management," Liu said.

 

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