The global corporate landscape is witnessing a rapid evolution. While small, medium, and large enterprises are participating in mergers and acquisitions, the industry leaders are paving the way. Particularly in high-growth technology sectors such as cyber security, cloud computing, and artificial intelligence. These arenas are not just reshaping industries, but also dictating M&A activity, molding the future of businesses from the top down. Let’s discuss how driving tech M&A from the top down is making a difference.
The pervasive threat of cybercrime is influencing the M&A landscape with a gain of over 50% in 2023 from the first half of 2022 in transactions. As businesses transition online — or maintain their preexisting digital presence — fortifying a company’s cyber structure is no longer optional but a strategic necessity. It involves developing comprehensive cybersecurity strategies, investing in robust infrastructures, and educating employees about potential threats. Companies are increasingly identifying the benefits of acquiring cybersecurity firms that possess cutting-edge solutions and experienced talent. Such strategic acquisitions not only offer immediate access to advanced security measures but also help expand the offerings for a firm’s tech stack. In the example transaction above, Mandiant will immediately improve Google’s ability to identify cyber threats.
Cloud Computing Demand
Another pivotal driver behind M&A is the exponential rise in demand for cloud computing. With businesses across the globe migrating to remote operations and digital frameworks, the cloud has become an essential commodity, facilitating data storage, seamless collaboration, and agile operations. However, this prompts a question: Can the demand for cloud computing within our digital economy top out?
Looking at current market trends, the prospect of the cloud market hitting a plateau seems unlikely. The technology’s inherent flexibility and scalability continue to attract businesses of all sizes. According to Gartner, worldwide end-user spending on public cloud services is forecast to grow by 19.7% from 2022 to nearly $623.9B in 2023. Moreover, emerging technologies like the Internet of Things (IoT) and Edge Computing are only pushing this growth further by generating large volumes of data that require cloud resources for effective management. Consequently, this rising demand is encouraging and driving tech M&A activity as companies seek to acquire cloud-based firms to bolster their digital capabilities and maintain competitive relevance.
Rapid Advancement of AI
Combined, AI and cloud computing made up 15% of IT M&A during the first half of 2023. This is up from 12% during the first half of 2022. This is in the wake of IBM estimating the average cost of a data breach during this year nearing $4.45M. Further, AI is not just transforming business operations; it’s also changing how customers interact with products and services. AI-based technologies like machine learning (responsible for an additional 3% of M&A during the first half of 2023) and natural language processing are enabling companies to deliver hyper-personalized experiences, automate complex tasks, and make data-driven decisions. M&A activities, like Microsoft’s acquisition above, are geared towards incorporating these AI capabilities into existing business models to stay ahead in the innovation race. For example, Nuance Communications’ healthcare solutions will now be paired with Microsoft Azure making both tools more powerful.
The integration of AI can yield significant benefits, including improved operational efficiencies, enhanced customer engagement, and new revenue streams. However, for lower-middle market firms to fully harness AI’s potential, businesses must prioritize talent acquisition, cultivate a data-driven culture, and proactively address ethical considerations. These factors are better leveraged through strategic M&A, allowing companies to leapfrog multiple R&D stages to gain an immediate competitive edge.
Technologies Are Driving M&A
Large corporations usually acquire ahead of the curve due to their sheer size, ability to research/possess data, and reserves of dry powder. The example acquisitions in this article’s headers offer a glance into where we can expect lower-middle market acquisitions to continue to shift.
Driving tech M&A continues to serve as a critical tool to navigate market progressions that accompany new technologies. Companies will accelerate their growth trajectory by acquiring businesses that already possess the required technological proficiency to adapt to these newer verticals. Moreover, through M&A, companies can also mitigate the risks associated with technological obsolescence, as these deals can offer them the agility to pivot as per evolving market trends.
The rapid technological advancements in AI, cloud computing, and cybersecurity are significantly influencing the M&A landscape. Companies, regardless of their size, will strategically leverage these trends to expand their capabilities, fortify their digital infrastructures, and stay ahead of the competition. As we navigate further into the digital era, the interplay between these technologies and the security needed to protect them will continue to shape the corporate landscape.