What fuels a lot of M&A these days? The need for better tech, says survey
[Happy Monday. We’re locked down in New York City, but we’ll pretend for now that everything is normal.]
The law firm White & Case has surveyed companies about what drives them to acquire other companies. And one of the top considerations is the continuing wave of digitalization. “Digital drives deals in every sector, ensuring tech is a primary focus of M&A across the board—even as data challenges multiply,” says the firm’s client note on the survey.
The top reason? The perennial “healthy financing environment.” So, not news on that score.
The firm says that 65 percent of their respondents are looking to acquire or merge to enhance their technology capabilities in the next year. The figure is 76 percent in banking and financial services and 71 percent in pharmaceuticals and healthcare. Nearly 80 percent of non-tech companies expect to spend more than 20 percent of their M&A budgets on acquiring tech.
“Sometimes companies need to recognize that things are just going to take a long time to develop organically, and as a result they need to make an inorganic investment to jump the S-curve,” the note quotes James Down, general counsel at Smiths Group, a UK-based engineering company. “Often that is a driver for M&A, whether that involves outright acquisitions or minority investments with a path to control, and digital solutions are increasingly at the heart of those decisions.”
In financial services, the firm says that digitization is driven by the transition to 5G and the rise of app-based banking (including the trend toward cashless and cardless payments). In pharma and healthcare, the client note says that companies now have sufficient tech in place and data on hand to enable true predictive and prescriptive healthcare.