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.
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