Powering Innovation Through Mergers and Acquisitions
Since mergers and acquisitions (M&A) have been introduced to the business world, they have been constantly used by corporations as a mechanism to grow, downsize, or reposition their core businesses. Mergers and acquisitions activities have increased over time and become increasingly important to multinational corporations. With drastic technological advancements made in the past decade, large corporations have been fueling growth through M&A activities in order to capture essential capabilities to pave the way for forward-looking opportunities.
As most would learn from business schools and New York Times bestsellers, business models are constantly evolving. No company is able to sustain in the long term without advancing their product offerings. In the past two decades, we experienced a transition from the Digital Revolution (known as the third industrial revolution) to the Fourth Industrial Revolution (known as Industry 4.0). More specifically, we went from the dot-com boom where the invention and adoption of the internet provided a virtual space for us to commercialize products and services online, to the digitalization of industries where we are utilizing digital technologies to enhance business processes and make better decisions. Corporations constantly need to look for external opportunities across different industries to keep their engines running.
Tech Companies Have Been Active in M&As
While tech companies have since become the buzzword for business growth in these two decades, they’ve also been the most sensitive to change. These tech companies have either been actively involved in M&A transactions or established their own corporate venture arms to make sure they’re staying ahead of competition. For example, Microsoft has made at least 225 acquisitions since the early 90s, including high-profile transactions such as Skype and LinkedIn. 22-year-old Silicon Valley software company Salesforce has an active venture fund that focuses on rounding up the company’s capabilities in enterprise technology, having invested in numerous notable startups like Snowflake and Zoom.
The Most Innovative Companies Are Serial Acquirers
If we look across various rankings for the most innovative companies in the world, there seems to be a consensus that Apple, Alphabet, Amazon, Microsoft, and Samsung stand atop as the leaders in this realm. What do these companies have in common? They’re all experienced serial acquirers. Regardless of the success of their acquisitions, they are not shy when it comes to an opportunity that they want to capture. Each one of these companies has made an acquisition that currently provides for an integral part of its product or service offering today.
Tech Giants’ Acquisitions Have A Lasting Impact
Apple acquired Siri in April 2010, a company who’s responsible for the voice control software that exists in almost every product Apple sells now. Google (Alphabet) bought Nest Labs in early 2014 to help enhance its home automation technology used in products like Nest Mini. Amazon purchased Whole Foods Market to help drive its eGrocery strategy, gaining access to important data from millions of shoppers to study customer purchasing behavior in-depth. In 2011, Microsoft completed an acquisition in Skype to enhance its real-time communications capability in its widely used office applications. Samsung’s biggest acquisition to date is its purchase of Harman International Industries, which mainly produces audio and visual products under brands such as Harman Kardon and JBL. What these companies have in common is that they have been actively screening external targets to accelerate internal growth as they realize that in-house innovation is no longer enough for today’s fast-changing consumer demand.
To understand how companies can benefit from external innovation through M&A, we can take a look at some of the common motives found in these innovation-driven transactions:
Capability Extension
When companies grow to a certain size, they would usually start exploiting adjacent markets to increase their revenue streams. Whether these firms are trying to enhance their existing products and services or build grounds on completely new territories, they may lack the specific technology required to complete their offerings. This is when they would seek for market ready targets to help complement their internal capabilities. The Apple-Siri deal is an example.
Vertical Integration
Vertical integration occurs when a company wants to bring together businesses that handle different parts of the production process in a supply chain. In an ideal situation, this could help the newly formed company achieve higher efficiency by reducing costs and building highly compatible products. A vertical acquisition is also known as a vertical expansion. Disney’s acquisition of Pixar is an example of this.
Intellectual Property
Companies may also decide to acquire a target who owns sought-after intellectual property in order to transfer the technical knowledge in-house. Studies have shown that acquiring innovative companies with unique intellectual property through a merger or an acquisition has had a positive impact on the acquirer’s innovation performance. Nvidia’s pending acquisition of Arm is an example.
Improving M&A Activity in Taiwan
Moving the focus to Taiwan, local M&A activities here have been steadily increasing in the past few years according to PwC’s annual Taiwan M&A white paper. In its latest edition in 2020, the white paper addressed that Taiwanese companies have become more active on foreign direct investment and cross-border M&A, with an outbound transaction value exceeding 50% of Taiwan’s overall M&A deal value. Domestically, M&A activity has also been thriving with more local corporations consolidating their resources to strengthen competitiveness in international markets. Most importantly, these M&A transactions aren’t limited to large conglomerates anymore. In the past, we’ve seen Taiwanese multinational corporations such as Foxconn, Yageo, and Qisda actively seeking external opportunities to extend their capabilities. Now, they are joined by many small and medium-sized enterprises in Taiwan as many face an inevitable transition in repositioning their core businesses for a smarter future.
In a world where change is happening everyday, companies ought to stay agile and attentive in order to keep up. If you are part of an established business looking to capture the next stage of growth through innovation, then maybe mergers and acquisitions could be the answer you’ve been waiting for.
