Mergers and Acquisitions Deals Gravitate To Internet Of Things
February, 02nd 2015
If you are running a company that sells solutions for the Internet of Things, you may be very attractive to larger suitors. In fact, it’s been a great time to be associated with anything related to cloud or digitization. The past year was the busiest run of mergers and acquisitions in 15 years.
That’s the word from Ernst & Young, which compiled a report on M&A activity in the final quarter of 2014. EY says Q4 wasn’t full of big deals, but the year 2014 saw as much M&A volume and value records that were surpassed only in 2000, at the height of the dotcom bubble. Companies in every industry are looking at digital transformation as the way forward into the global economy, and the companies that sell solutions to address this are hot stuff.
Sweet spots in M&A deals included advertising and marketing, security and Internet of Things (IoT) . IoT had two top 10 deals, both of which targeted semiconductor companies supplying devices to feed this network-and-sensor-oriented trend. The largest volume of deals were concentrated on cloud, Software as a Service, and smart mobility.
Separately, a report from 451 Research states that acquirers spent $14 billion to acquire more than 60 ‘Internet of Things’-related companies in 2014. That marks a forty-fold increase in acquirer spending and a more than twofold jump in the number of deals compared to 2013, according to 451. “The number of deals increased more than twofold as companies such as Google GOOGL +4.85%, Samsung, Cisco, Intel INTC -3.36%, PTC , Qualcomm QCOM -1.95% and many others staked out their ground in an effort to position IoT as a key contributor to corporate strategy. The sharp rise in deal-making activity in 2014 suggests that market forces surrounding IoT have become sufficiently compelling to demand action.”
The IoT sector covers a range of categories, including embedded computing systems to communication infrastructure, IP networking, cloud and data center technologies, 451 reports.
EY predicts that technology companies, for one, will continue using M&A to keep up with the pace of change and stay a step ahead of innovative startups. M&A may also be driven by the insatiable need for skilled talent as well. A report from CIO’s Kim Nash details how many top-flight companies — especially non-tech companies — are simply buying startups as a way of acquiring needed talent. “Aetna, Capital One, Home Depot, Wal-Mart Stores and several other non-IT companies have made such acquisitions recently, pursuing startups for their technology and talent,” Nash writes. “That type of activity has been especially brisk for the past two years. And there’s no slowdown in sight.”
EY calculates that in Q4, close to $45 billion in deals were cut, down 39% from a record-setting third quarter. But the 2014 annual total was $237.6 billion, the highest volume since 2000. A total of 959 publicly documented M&A deals took place in the most recent quarter, and 3,512 deals were posted for the entire 12 months of 2014.
While 2014 was a blockbuster year for technology M&A it is not a bubble a la year 2000. “Despite the occasional ‘moonshot’ from a handful of deep-pocketed buyers, the vast majority of deals were measured in reality-based multiples of good-old-fashioned revenue, profit or cash flow,” the report notes.