M&A has been widely adopted across a range of technology segments as not only the vehicle to drive growth but, more importantly, to remain at the leading edge in rapidly changing business environment that is being spurred by the rise of cloud, mobile, analytics, and cloud (SMAC) computing.
Corporate professional services firm BDO USA [www.bdo.com] polled approximately 100 CFOs of U.S. tech outfits for its 2014 Technology Outlook Survey and found them firm in the belief that mergers and acquisitions in tech would either stay at the same rate (40 percent) or increase over last year (43 percent). And this isn’t a recent phenomenon.
M&A has been widely adopted across a range of technology segments as not only the vehicle to drive growth but, more importantly, to remain at the leading edge in rapidly changing business environment that is being spurred by cloud and mobile computing. EMC, for example, has evolved from a leading storage infrastructure player to a broad-based technology giant driven by 70 acquisitions over the past 10 years.
Since this past August IBM has been involved in a variety of acquisitions amounting to billions of dollars. These acquisitions touch on everything from mobile networks for big data analytics and mobile device management to cloud services integration.
Google, however, probably should be considered the poster child for M&A. According to published reports, Google has been acquiring, on average, more than one company per week since 2010. The giant search engine and services company’s biggest acquisition to date has been the purchase of Motorola Mobility, a mobile device (hardware) manufacturing company, for $12.5 billion. The company also purchased an Israeli startup Waze [www.waze.com] in June 2013 for almost $1 billion. Waze is a GPS-based application for mobile phones and has brought Google a strong position in the mobile phone navigation business, even besting Apple’s iPhone for navigation.
Fueling this M&A wave is SMAC (Social, Mobile, Analytics, Cloud). SMAC appears to be triggering a scramble among large, established blue chip companies like IBM, EMC, HP, Oracle, and more to acquire almost any promising upstarts out there. Their fear: becoming irrelevant, especially among the young, most highly sought demographics.
SMAC has become the code word (code acronym, anyway) for the future. CFOs have embraced SMAC-driven M&A as the fastest, easiest, and cheapest way to achieve strategic advantage through new capabilities and the talent that developed those capabilities. Sure, the companies could recruit and build those capabilities on their own but it could take years to bring a given feature to market that way and by then, in today’s fast moving competitive markets, the company would be doomed to forever playing catch up.
Even with the billion-dollar and multi-billion dollar price tags some of these upstarts are commanding strategic acquisitions like Waze, IBM’s SoftLayer, or EMC’s XtremeIO have the potential to be game changers. That’s the hope, of course. But it can be risky, although risk can be managed. That’s where the CFO comes in.
And the best way to manage SMAC merger risk is to have a coherent strategy for leveraging the new acquisition. What you need to avoid, however, is ending up with a bunch of SMAC piece parts that don’t fit together.