Paul Inouye Explains Current and Future Trends in Mergers and Acquisitions in the Tech Industry

The pace of mergers and acquisitions over the last twelve months has been breathtaking. Statistics show that about 53% of companies restructured in the wake of the COVID-19 pandemic, and an additional 44% are considering following in their footsteps in the next twelve months. Paul Inouye, CEO, and founder of Western Hill Partners provides software and internet-focused advisory and consultancy services, and he has seen first-hand the effect that mergers and acquisitions have on the industry. He offers insight into current and future merger trends that could shape tech companies this year and the next.

Paul Inouye

There are three main reasons tech companies merge, Inouye explains. About 37% of companies are opting for operational changes in direct response to challenges brought about by the COVID-19 pandemic, a trend that may remain in place for some time as pandemic-related problems such as inflation, supply chain shortages, and a shortage of skilled workers continue to take a toll on the economy. The ability to gain experienced manpower is a particularly important benefit for tech companies, as a severe shortage of skilled workers is leading many tech firms to consider drastic actions such as hiring workers without a college degree, creating "upskilling" programs for existing employees to enable them to handle new jobs and outsourcing tasks to skilled freelancers.

About one-third of companies merge or acquire new firms for tax and/or for financial benefits. Tax inversion deals with significantly lower costs if a company can purchase a firm based in a foreign country with a low tax rate, Paul Inouye notes. The most common destinations for international mergers are North American nations (not including the United States) and Europe, with Ireland being a particularly well-known destination due to its low tax rate.

Paul Inouye says that an additional third of tech company mergers and acquisitions are done to expand margin. Merging with or acquiring a new company can make a firm rethink its product portfolio and pricing strategy. Some firms use the move to lower prices as the new company may have access to technology and/or supplies that lower overhead costs. Others use the merger/acquisition to create new products/services or augment current products and/or services. Such a merger is a win-win situation for all involved, as companies and consumers benefit when two companies join forces to improve goods and/or services to the public. Furthermore, such mergers are also typically conducted with an eye on geography and market segments to enable a company to better reach a new area or target demographic.

Paul Inouye predicts that current trends in mergers and acquisitions will continue this year and in the coming years. He also notes that a growing number of companies are using data analytics to make decisions and power mergers/acquisitions and says that this trend will likely gain in popularity in the coming years. As tech companies become increasingly proficient in identifying and merging with/acquiring other firms, technological development will likely quicken as companies gain the needed resources to create innovative goods and services.

read more: Paul Delacourt

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