Technology M&A – Trends for 2013
The global M&A outlook for 2013 as a whole appears uncertain. Remark and mergermarket's "Doing the Deal" study shows less than 50% of Europe's leading dealmakers expect a rise in M&A activity over the coming 12 months, with lingering uncertainty and lack of confidence as a result of austerity measures on the agenda of most European governments. However, 2012 yielded deals worth £8.3billion in the UK technology sector and accountancy firm BDO predicts that technology M&A in 2013 will continue to outperform the wider market.
It is likely that technology M&A in the first half of 2013 will continue to be driven by those same factors which drove activity in the latter stages of 2012, principally (i) big data, (ii) smart mobility, (iii) cloud computing and (iv) social networking.
The second of these 4 short articles focuses on Smart Mobility, looking back at some of the deals from 2012 and highlighting the potential activity for the coming 12 months.
Trend #2: Smart Mobility
It is suggested there are now more smart devices in the UK than there are people. The industry talks of a revolution coming: Smart Mobility – a new breed of mobile digital applications which are intuitive, contextually driven and provide time, location and situation specific data for consumers and organisations alike, from the retail, automotive and energy industries to the healthcare sector.
There are some positive signs in the UK for the smart mobility market to develop further in 2013, including EE's continued roll-out of 4G, making superfast mobile accessible to thousands of people and organisations. The growth of "smart cities" has been an interesting development and an opportunity for technology providers to continue to benefit, from those companies which install and maintain the intelligent sensor networks to those companies which provide innovative software solutions to analyse the returning data.
There are three areas which could be particularly active for M&A this year:
B2C – Devices enabling interaction between businesses and their customers and clients
Mobile devices are transforming the way in which organisations communicate with their customers. Facebook's disappointing IPO last year highlighted its difficulty with (and the importance of) being able to appeal to users who access the web through their mobile phones. Indeed, Gartner, a leading IT research and advisory company, predicts that by 2013 mobile phones will overtake PCs as the most common Web access device worldwide and that by 2015 over 80 percent of the handsets sold in mature markets will be smartphones. It has also recently been announced that the Linux-based 'Ubuntu' operating system has been adapted to run on smartphones, allowing users to run desktop apps on their handsets, enabling them to double for PCs when docked to monitors. All of which means? The future is mobile – and businesses must adapt if they haven't already.
Imagine walking through the shopping centre and being alerted on your smart phone that the pair of jeans you've been after are available in your size, in the next shop along. Direct, targeted, location specific marketing which retailers will want to explore and exploit. Whoever can provide the technology to enable the retailers do so should be of great interest to acquirers.
The explosion in mobile/e-payment providers would also allow you to then pay for that item using the same smart phone that directed you to the store. An Ernst & Young report on M&A activity in the mobile/epayment sector showed a surge in value during the third quarter of 2012. Indeed, a recent report from Juniper Research says mobile payments are expected to almost quadruple to $1.3 trillion annually by 2017. 2012 deals of note include Paypal's acquisition of start-up card.io, a company which provides technology for developers to capture credit card information by using the camera on a smartphone for an undisclosed sum, and Braintree's acquisition of mobile payments start-up Venmo (which allows friends to easily split a restaurant bill) for $26.2m. Ask most people about using mobile payment and the key concern is security – how secure can this technology be? Opportunities therefore arise for M&A activity in the security and data privacy sectors, as highlighted by Apple's acquisition of AuthenTec (a company specialising in fingerprint scanning technology) for $365m, to develop security products for the iPhone and iPad.
Apple has recently announced that over 40 billion apps have now been downloaded from its App Store, with nearly 20 billion downloaded in 2012 alone. Innovative apps and platforms which enable businesses to provide contextual real-time products or services, information on the nearest/best/cheapest product or service, or payments solutions, all in a secure manner, should be potential acquisition targets in 2013.
BYOD – Smart mobility in the workplace
More and more organisations are transitioning towards a "Bring Your Own Device" IT strategy, enabling their employees to use their own smart phones, iPhones and laptops for work related purposes, driving down IT costs while improving employee productivity and satisfaction. Again, as is increasingly the case with new mobile technology, the provision of data privacy and security solutions is at the forefront of this area. Recent deals of note include Dell's acquisition of Credant in December 2012 and Citrix's acquisition in January 2013 of device management software provider Zenprise, both for undisclosed fees.
Cisco, Cognizant, Citrix, Dell… there are many leaders in this field providing BYOD solutions which may continue to look at bolt-on acquisitions, and many others in the marketplace with strong client lists which could see consolidation across various sectors.
M2M – Machine to machine communications
Machine-to-Machine technologies connect ‘things’ to the internet, transforming them into intelligent devices that exchange real time information without human intervention, enabling businesses to streamline how they are run, how they grow and how customers themselves interact with products and services. Smart metering, in-vehicle monitoring, medical devices which communicate patient vital statistics and pallets and packages which are able to communicate their location are all examples of how this technology can work in practice.
Telematics and in-vehicle entertainment has been the largest sub-sector within M2M, with recent joint ventures and strategic partnerships announced. A great recent example from 2012 is Ford Motor Company's tie up with and AT&T to wirelessly connect the new Ford Focus with an embedded wireless connection and dedicated app that includes the ability for the owner to monitor and control vehicle charge settings, plan single- or multiple-stop journeys, locate charging stations and pre-heat or cool the car from the mobile app.
The leading telco operators including Vodafone, AT&T, Telefonica, Verizon, Alcatel etc… are all exploring ways in which they can provide an end-to-end service to increase revenue. In many cases they lack the vertical sector-specific expertise to truly exploit the opportunity in the M2M market, wherein lies the potential for further M&A activity. The most high-profile M&A deal in this sector from 2012 was Verizon's all cash acquisition of Hughes Telematics, a market leader in fleet management, in-car services and remote diagnostics, for $612 million. A study by Machina Research shortly after the acquisition identified that it "had substantially strengthened Verizon’s vertical sector capabilities in automotive, transport and logistics, and healthcare, allowing Verizon to generate an additional $3.6 billion in revenue between 2012 and 2020 compared to if it had not done the deal". Similarly, NASDAQ listed Sierra Wireless' acquisition of Sagemcom’s M2M business for €44.9m is another good example of operators seeking to build vertical sector expertise through M&A: the Sagemcom M2M business providing Sierra Wireless with a significantly enhanced market position in key segments, including payment, transportation, and railways.
There could also be good M&A opportunities within the reseller market, particularly those with strong customer bases and which are EBIT positive.
It's likely that 2013 may see some large deals in this space, together with many smaller scale strategic acquisitions as start-ups look to acquire greater market share.
Tim Bird is a Partner and Tom Ward is a Senior Associate at Field Fisher Waterhouse LLP, both specialising in mergers and acquisitions and venture capital. Field Fisher Waterhouse LLP is a leading technology, media and IP focused full-service law firm, with offices across Europe and in Palo Alto.
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