M&A – the rise of non-tech acquirers

9 April, 2019

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We have noticed a growing trend in M&A transactions where non-tech companies are increasingly acquiring tech companies (or tech companies are expanding into areas they haven’t previously operated in). The reasons vary from sector to sector, but some observations from our recent experience:

 

  1. Even if a company is not a traditional tech company, more and more businesses are finding they need a technology offering to help them stay competitive, and the fastest way to obtain a technology solution, together with a skilled tech workforce, is often by acquisition.

 

  1. A business may rely on a key software product that it has developed/commissioned in collaboration with a third party software developer. In order to protect the IP and have more control over its ongoing development (and keeping it out of competitors’ hands), buying the software developer is often an obvious solution.

 

  1. Customers are requiring a more joined up service offering/one stop shop. A telecoms company for example, that also provides IT support and cloud hosting services can market itself as a total solutions provider, and so reduce the need for its customers to procure these services separately.

 

  1. Businesses are looking to diversify their operations, particularly companies operating in traditionally high volume/low margin sectors, such as hardware manufacturing, acquiring a software business can offer a fast way to grow the bottom line and/or increase recurring revenue streams.

 

As with any acquisition, acquiring a technology business does not come without its risks (see the ongoing Hewlett-Packard dispute regarding its purchase of Autonomy – although this is very much the exception) and these can be amplified if the acquirer does not operate in the same sector as the target business. Working with advisers who are experienced in the tech sector, and undertaking a thorough due diligence process can help mitigate the deal risks. Equally as important is gaining an understanding of the ethos and culture of the target company, as tech businesses often have very different ways of working compared to some traditional businesses.

For more information, contact John Kirkwood on 01892 506226 or john.kirkwood@crippspg.co.uk 

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