Mergers and acquisition transactions are becoming larger, more valuable, and more complex than ever before. As the surge in M&A activity continues, most businesses will require cutting-edge technological solutions to execute M&A transactions successfully.
Technology can make a considerable impact on the success and efficiency of M&A, from facilitating a better-informed and accelerated deal process to enhanced post-merger integration.
The frequency of acquisitions also means that technical leadership needs to pay close attention to what is happening in the market.
Although we have experienced some fluctuations in value and volume over the past ten years, there has been a positive overarching trend in M&A driven considerably by technology.
It is no secret that technology is being integrated almost everywhere – into brick and mortar retail, cars, buildings, factory floors, refrigerators, and even into our bodies.
Another reason for increasing M&A activity, especially within the AI and software space, is sector convergence.
To stay abreast of the rapid pace of technological growth, many non-tech firms are now vying for strategic acquisitions to enable a positive digital transformation while possibly opening up new revenue sources.
Traditionally, organizations that have merged or acquired others have done so in order to drive synergies, acquiring targets very similar to their own companies.
However, tech trends in M&A are changing that.
The M&A cycle persisted incredibly, with the gradual evolution of tech from a vertical into a horizontal.
Technology is playing a crucial role in underpinning both acquisitions and investment on the part of financial and strategic acquirers alike.
Here are the top five technology trends in M&A.
1. Artificial Intelligence
The application of artificial intelligence will help companies, as well as financial analysts, gather and process information more easily, expediting different kinds of M&A-related decisions.
For example, due diligence plays a significant role in most M&A transactions. Here is where AI becomes an overriding tool; this is because its main objective is to make many processes more efficient while helping mitigate human error in several tasks.
AI-enabled M&A software can easily parse the files stored in virtual data rooms more quickly than human employees.
Hence, it is no surprise that 78% of companies think that by 2022, due diligence would take less than three months (on average).
Although humans can certainly execute these tasks, AI-supported devices will be able to better perform these activities continuously and have much better recollections of search results.
Once you have developed your M&A strategy, you can use AI to identify potential M&A targets as well as track information about them or collect information that affects their unique business models.
For instance, for an acquirer looking to target a real estate business, AI could be used for gathering several kinds of data to analyze the attractiveness of this acquisition opportunity, like macroeconomic data, property prices, interest rates, and company information.
2. Enterprise Application Software
Software companies are continuing to disrupt nearly all sectors from conventional ones, such as automotive to new sectors such as cybersecurity and Fintech.
Enterprise application software and SaaS is rapidly growing as more and more business organizations move their data and applications to the cloud.
Larger businesses are acquiring innovative start-ups as well as disruptive leaders to reinvigorate the services they can offer to their customers. Examples include some recent deals, such as SAP’s purchase of Qualtrics, a SaaS company that specializes in survey software, for a staggering $8 billion in cash.
Increasingly, private equity firms are looking at the purchase of software businesses that have a recurring and subscription-based revenue model.
As PE firms aggressively compete to add more companies to their portfolios, business valuations are expected to rise.
The rapidly changing nature of data storage, coupled with the move to various hybrid cloud solutions is helping create M&A targets of some of the high-performing, small-to-medium-sized cybersecurity firms.
The market is also splitting between organizations that want point solutions and companies that want a one-stop solution.
In addition, it has become evident that most of the companies in the former group and even some in the latter need effective security orchestration systems in order to help them move data and policies from one solution to another and integrate these disparate products.
Moreover, there is a radical shift from thinking only about security to governance. Big companies such as Intel Corp. are investing in smaller cybersecurity firms.
For example, Palo Alto Networks Inc. acquired two companies as it sought to expand and fortify its cloud security suite.
4. Healthcare Tech
Healthcare tech executives expect their businesses to trump 2018’s benchmarks.
They are expected to use mergers and acquisitions in order to meet those expectations, according to a recent survey.
Technology is one of the main driving forces behind making healthcare more affordable and effective.
In addition, companies from other sectors, like Amazon, are looking to enter the health sector, in order to disrupt, transform, and eventually profit from it. Amazon, for example, acquired the online pharmacy business PillPack in June 2018 for $1 billion.
M&A activity is also becoming increasingly vertical evidenced by deals, like the merger between Aetna and CVS Health, UnitedHealth Group’s purchase of DaVita Medical Group.
In the next decade, it is likely that we will see more M&A activity as problems associated with the West’s ageing population grow.
5. Improving Integrations
According to many estimates, the rate of failure of M&A transactions is between 70 per cent and 90 per cent.
The inability to effectively integrate the two companies’ workforces, processes, cultures, and management after a deal is complete is one of the biggest reasons for M&A failure.
Digital technology, when used effectively, could be a game-changer for the success of the post-deal period.
It is worth mentioning that companies that are looking to expand into a new vertical may use business process management software with application programming interfaces to make it simpler for the post-M&A organization to quickly and effectively recompose these IT building blocks, and improve flexibility and efficiency at the same time.
On the other hand, companies that intend to merge research and development operations have the option to use analytics software to help determine the R&D initiatives, which appear most promising and cut back on other projects that are less promising.
Bonus Tip: Cloud Computing and Storage
Cloud Computing and storage are revolutionizing the way managers go about their M&A deals.
The prospect of being able to access all of their information from anywhere is quite enticing and gives managers the flexibility that they require during the M&A process.
It is convenient, secure, and allows both parties to access information on the fly, creating transparency and trust among both of the merging parties.
One of the many benefits clouds computing is that companies can skip the necessary yet tedious updates and patches to their software, as the service provider, installs them instead.
This can save a company’s precious time that they can instead use to make more strategic decisions.
Speaking of making more strategic decisions, with the help of cloud computing, companies can collaborate over long distances.
Since both the companies have access to relevant information, they can better coordinate with each other regardless of the distance between both managers.
Cloud computing is also very secure and safe, which makes it especially great for crucial information that a company gathers during an M&A.
Cloud computing service providers pride themselves in the security that they provide, and for a good reason.
It uses software like VPNs, which can mask a user’s IP address making them virtually untraceable.
This software also protects users as they access any online services by blocking interference from other mediums.
M&As are burdensome on each company, seeing how they are performing at half their efficiency as most resources are going to the merger.
Both companies also have to worry about the information they have and how to protect it.
However, lucky for them, they can keep their information safe through virtual data rooms in cloud computing.
Virtual data rooms also allow both managers from different companies to access information at their convenience without having to worry about hackers.
M&As are some of the most important decisions that any company makes in order to survive.
Even though they can have a failure right as high 90%, companies are still willing to take that risk seeing the many benefits that it provides.
However, luckily, new tech trends are looking to bring that massive failure rate down considerably.
With better Cyber Security, cloud computing, and enterprise-driven software, companies can efficiently communicate with each other and make better decisions.
While in older times, people would have to install relevant software in their computer, tech trends like cloud computing completely take tedious installs and updates pout of the question.
This feature alone allows companies to focus more on their business operations and the merger.
In conclusion, these tech trends are able to greatly reduce the risk that is associated with M&As and is, in turn, revolutionizing them.
As these trends get rid of more tedious tasks, managers can instead focus on making better decisions.