Skip to main content

The last M&A Worldwide Convention took place in New Delhi on 17-18th November 2017, providing an opportunity for all network members to discuss M&A projects in the IT Sector. One of the world’s fastest growing economies and home to a thriving IT sector, India is profiled in brief on page 2.

Two key factors currently driving development in the IT market are Connectivity and Mobility, with companies across the world becoming increasingly focused on how to understand, contribute to and ultimately gain advantage from the rapid expansion of the Internet of Things (“IoT”). These key trends are discussed in depth by M&A WW industry experts on page 5 and 8 of the report.

 

IoT Landscape and M&A

By Dr. Kai-Henrik Bart, Partner M&A Worldwide, Germany

“Anything that can be connected will be connected.”

This is clearly the most practicable definition when it comes to “IoT” or “Internet of Things”. In terms of investment and acquisition, the IoT is about to become and probably surpass what once has been the internet or all businesses connected to the smartphone. The estimates range from 20-50 billion devices connected or connectable via the internet in 2020, with staggering growth rates between 25-40% – annually.

IoT is a burgeoning market, and one of the hallmarks of its emergence will be a continued, high level of M&A activity as the major players all jockey for position across the various vertical market sectors. For those involved in supporting (especially) buyers, it becomes paramount to understand technologies, market shifts and new business models “out-of-the box” thereby creating value opportunities for buyers considering their traditional home turf too much.

Key Characteristics
The key characteristics of the IoT in terms of business case and subsequently of seller attractiveness are:

The sale is not the end
Once standalone analogue business models become life-cycle oriented, it is not the initial product or service rendered but the services and functionalities offered after the initial offering that is responsible for the financial attractiveness. Companies need to think in much longer commercialization cycles and need to acquire not only ever changing technology but also need to tie customers (becoming more B2C than B2B) into compelling business models.

All industries are affected
Smart cities, autonomous cars, 3D printing, smart grid, connected homes, human/machine interfaces and a legion of other application areas make it paramount for every company to readjust their strategy, re-focus technology, address new target groups and readjust their business models.

Dynamics, dynamics, dynamics
New competitors may show up within years or even months, technological development in the industry may take leaps and already investigated technologies, found too slowly, may show new and improved characteristics, leading to new business possibilities and addressability of markets.

Data becomes king
Machine data, customer data and life cycle date will govern the success or failure of a company in a specific industry.

For instance, who will take the prize, when connected, autonomous cars are produced in ever larger numbers? Will it be the Mercedes, Toyota or Peugeot of this world or the Google(s), Uber(s), navigation, entertainment or more exotic companies currently operating tangentially to the traditional manufacturers?

Numerous companies are already striving to commercialize the data generated by the car industry, its passengers and the affected environment; this raises questions as to how fit the incumbent car manufacturers are to play in the same league as “information” professionals. What happens to a century old tradition, when presumably a big chunk of the market will be replaced by 3Dprinting, thereby replacing the traditional necessities for machine led manufacturing?

Considering the key characteristics of the IoT and its possibility to affect every industry, it is no small wonder that these trends have a large impact on the M&A activity in this sector. Again, there are a couple of common denominators which should be understood:

Technological savviness
Independent of what industry you are in or on what type of company you are focusing on as an investor, you need to be able to understand both basic and more specific technologies which might affect the success of your targeted company. These technologies might currently reside inside your industry already or might still be outside. Just knowing your industry is not enough anymore. The next strategic move, the next potential add-on might reside in an industry completely outside your own.

Pricing and multiples are influenced by levels of digitalization
The more a company is digitized, compared to other companies in its industry, the higher the multiple paid by (strategic) investors, Today, we witness Private Equity funds, in their Acquisition strategies as well as their buy-and-build considerations, put a special emphasis on the level of digitalization of a target. Pricing may vary by up to 10x in multiples if digitalization is high in the target.

Domination of big players
The higher the opportunity felt in an IoT driven target, the higher the multiples, the bigger the buyers – it is as simple as that. Many companies specialize in subsections of the IoT. But (only) some very large companies (Like GE or Siemens or Bosch or Samsung etc.) have the resources, manpower and tradition to capitalize from almost every aspect of the IoT capabilities on a target. It might by that for small- or mid-sized companies certain investments or acquisitions might look worthwhile, but there is a bigger competitor, who is willing and able to pay a much higher premium.

Number of targets limited, interest high – valuations soaring
Looking at the catchwords in 2016 – BigData, Cloud/ Saas and IoT – it is obvious that the latter showed the fewest deals, but (and this is a big BUT) outpaced every other category in average deal size, which was a staggering $3bn. It’s true that top tier IoT vendors may still purchase niche startups just out of stealth mode for relatively modest prices of $50 million, $100 million or $200 million for a promising IoT product, engineering talent, plus a valuable patent portfolio (present or future). But M&A deals of $1-2bn are increasingly common and megabillion deals – like Intel’s purchase of Altera for over $16 are no longer a rarity.

The hottest investment trends and therefore probably those market/technology combinations to watch out for are shown in a Forrester heat-map. Those shown in red currently experience the highest market attention and sometime exaggerations. It might be worthwhile to have a closer look at those shown in blue or green, as undetected opportunities for buyers might arise in these sectors.

There is an indication that the most desirable acquisition targets are companies whose core competencies revolve around analytics, security, connectivity platform capabilities and services. And within those product categories IoT buyers are especially eager to acquire companies in hot vertical segments including: Automotive, Consumer wearables, Healthcare, Industrial IoT (IioT), Manufacturing, Retail, Smart Home, Transportation and Weather.

Download full report & subscribe for future editions

    I have read and agreed to the Privacy Policy and Legal Disclaimer .

    I agree to receive communications via email and social networks of an informative and promotional nature from ArsCorporte. I understand that I may opt-out of ArsCorporate subscriptions at any time.

    Close Menu