You Don’t Have to Be a Tech Company to Be a Tech Company (Part 1)

“We are a technology company” – Goldman Sachs CEO, Lloyd Blankfein

“We are a technology company” – JP Morgan CFO, Marianne Lake

“Every discussion we have now is about technology” – Deutsche Bank CEO, John Cryan

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“It’s our recognition that if you go to bed as an industrial company, you’re going to wake up as a software and analytics company. The notion that there’s a huge separation between the industrial world and the world of digitalization – those days are over…”– Jeffrey Immelt, Chairman and CEO, GE

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“Most industries will embed computing, software functionality, communication, and data services into the products they make and sell…every company will need to become a technology company”– Mark Raskino and Graham Waller, Gartner

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The Backdrop

What large corporate today doesn’t call itself a “technology” company, in some way?

Increasingly, digital technology for companies is like water, air or electricity – you have to have it – just to survive.

Rob Carter, CIO, FedEx Corporation says “the digital revolution is underway and survival requires way more than surface level tactics.”

But survival isn’t enough –

Survival isn’t enough to compete in today’s global market in which consumers are

a)   demanding more and more and more advanced offerings and solutions,

b)   all the time, and

c)   in all aspects of their daily lives.

EY reported in a recent survey of 600 large-cap corporate executives from around the world that 90% of the executives face increased competition from businesses that have already embraced digital technology

[1].

90%? That essentially means everyone.

Gartner Fellow, Mark Raskino, says “every industry will be digitally remastered.”

This “remastering” is already happening.

M&A and the acquisition of the right technology company is becoming increasingly important to the success of a growth-focused company.

Look at the success of Harman International Industries.

Harman, a traditional manufacturer of speakers and other audio gear, has just announced a few days ago that it is being acquired by Samsung for $8 billion.

Why?

Because Harman, as a growth-focused company, created more value and guarded against disruption by expanding over the past several years into software development and components for connected cars, such as WiFi connectivity and navigation systems.

Harman created much of its well-directed expansion by acquiring tech companies, such as a $780m acquisition last year of software-services company, Symphony Teleca Corp.

And what about Samsung? Harman is a rare big acquisition for the company – Samsung prefers to develop technologies in-house. So why Harman?

Samsung sees Harman as a connected car technology company, and as Samsung’s strategy chief, Young Sohn, points out, “we think technology is more critical than being in the metal-bending business.”[2]

The Stats and Facts

So exactly how widespread is M&A used today as a tool for growth-focused companies to respond to digital disruption?

EY states that more than 67% of global executives now plan to use M&A to upgrade their digital capabilities in responding to heightened competition and a disruptive environment.

The chart below (from EY’s June 2016 “Dealing in a digital world” study) shows that the 90% of executives who are concerned about their competition having already embraced digital technology believe that 62% of this competition have achieved their competitive position via M&A or inorganic means.

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Only a few weeks ago Anthony Jenkins, the former CEO of the world’s 16th largest bank, Barclays Bank, said that the IT systems of all of Britain’s big four banks are “antiquated and inefficient”.

Jenkins warns that if banks fail to deliver superior services to compete with Fintech companies then the banks “risk losing revenue” and even risk “being displaced”.

Given Jenkins’ credible insight and the fact that technology spend in the banking industry represents the largest IT spend of any industry, this is a serious affirmation of the importance of technology in industry today.

Devising technological solutions and innovation in-house is no longer enough.

BBVA, Mastercard and Boeing have made seven, eight and 10 technology company acquisitions, respectively, since 2011 according to PwC.

In this time Siemens has acquired or invested in at least 26 technology companies, GE at least 22.

Companies in non-digital industries completed 48% more technology company acquisitions in 2015 than they did in 2011.

Of the roughly 20,000 technology company acquisitions announced between 2011 and 2015, about a third involved a non-tech, non-telecom acquirer. (PwC)

The infographic below highlights the trend of “non-tech” companies acquiring “tech” companies as they, and their respective industries, go more and more tech.

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A few of the more interesting technology company acquisitions made by more traditional companies include the following transactions:

  • Samsung acquiring audio systems company, Harman ($8b; Nov 2016)
  • John Wiley & Sons acquiring SaaS content delivery to publishers company, Atypon Systems ($120m; Aug 2016)
  • Telus Health acquiring cloud-based EHR and PM solutions company, Nightingale Informatix ($14m; Jul 2016)
  • GM acquiring self-driving tech start-up, Cruise Automation ($1b; Mar 2016)
  • Adidas acquiring app tracking company, Runtastic ($240m; Aug 2015)
  • Hello Curry fast food chain acquiring software company Fire42 (und; Jun 2015)
  • Under Armour acquiring fitness and nutrition tracking platform, MapMyFitness ($150m; Feb 2015)
  • Harman acquiring software-services company, Symphony Teleca ($780m; Jan 2015)
  • Capital One acquiring user experience consultancy, Adaptive Path (und; Oct 2014)
  • Monsanto acquiring weather big data company, Climate Corp. ($930m; Oct 2013)

In fact, there have been so many transactions recently by traditional “non-tech” companies acquiring tech companies that we’ve highlighted a few of the more interesting transactions, in our view, in a tech company acquisition “map” we’ve created, shown below.

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Future-Proofing the Organisation Against Exponential Change (Disruption)

Acquisitions of technology companies are positively impacting all elements of acquirers’ businesses –

  • logistics/supply chain
  • back office
  • inventory management
  • cost of goods reduction
  • quality of goods enhancement
  • big data customer analytics
  • new product extensions and improvements
  • enhanced customer / user experience

the list goes on and on.

Not only are technological advances “speeding up”, but they are speeding up exponentially.

A simple chart describes the difference between simple, linear arithmetic growth and exponential geometric growth:

 

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Andy Kessler describes it well below (WSJ, 8 November 2016):

“In 1970,  Intel  pioneered integrated memory chips to replace wire-wrapped diodes. The 3101 was a 64 bit SRAM chip that  IBM  and others could buy for $40 each. Let’s call it a buck a bit. Today…you’re carrying around an iPhone or Android with at least 32 gigabytes of memory. At a buck a bit, that’s . . . wow, congratulations! You’re a billionaire! We all are…this is progress on steroids and is coming faster and faster…” 

These exponential technological advances are speeding up customers’ expectations, which in turn are affecting consumer behaviours, which in turn affect behaviour in the enterprise.

When the customer demands more, it doesn’t just affect pricing, or product. It affects everything.

Higher customer expectations affect every element of the organisation – R&D, production, operations, sales and marketing, HR. No department or business function is safe.

Whether we like it or not, our society is rapidly – exponentially – advancing to a brave new “Westworld” singularity.

The question is, can you, as a growth-focused company, build – organically – the capabilities required to create more value, guard against disruption and enhance the customer experience?

Or, do you need to acquire these capabilities?

Or both?

These are monumental challenges that companies face today.

But, they can be met.

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. Winston Churchill

You

So how does your company keep up with continually rising customer expectations?

How do you avoid being disrupted? How do you avoid becoming “antiquated” and “inefficient”, as Jenkins warns?

How does your company future-proof itself….?

….stay tuned for “Part 2” of “You Don’t Have to Be a Tech Company to Be a Tech Company”, coming soon…

To Your Success in our Exciting, Brave New World,

–        Paul Cuatrecasas, Founder and CEO

Aquaa Partners

“We enable growth-focused companies to create more value and guard against disruption by acquiring the right tech companies.”

paulc@aquaapartners.com

www.aquaapartners.com

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[1] EY, “Dealing in a digital world”, June 2016

[2] WSJ, 15 Nov 2016, “Samsung Charges Into Auto Tech With $8 Billion Deal for Harman”


By |2017-08-20T20:30:41+00:00November 17th, 2016|Acquisitions, Financial|0 Comments