Unlike other industries, which will see an increasing number of huge M&As in 2016, technology will be different. Instead, more technology companies will enter into what are known as “industrial mash-ups,” partnering rather than merging. These kind of deals are expected to characterise the landscapes of major digital hubs in Silicon Valley and London corporate finance.
This more intense form of partnering will, in some instances, stand in for joint ventures and other types of corporate alliances as well. They’re a powerful new way for businesses to collaboratively innovate, and they’re just beginning to emerge. Industrial mash-ups will accelerate innovation to market by enabling more collaboration with less deal-making friction. And they’ll enable organisations to migrate more rapidly to comprehensive, end-to-end solutions, in the trend called stack to solution (S2S).
In fact, it is already happening. In recent months, there have been alliances between Cisco Systems and Ericsson, Apple and IBM, Alibaba and Disney, Uber and Facebook, and Lyft and Didi Kuaidi, to name a few. These deals show that industrial mash-ups are about more than collaborating when an M&A transaction may not work. Such deals are flexible enough that partners can bring specific portions of their broader value propositions to the deal, and then narrowly define deal parameters in a way that insulates their other areas of business.
To understand why industrial mash-ups are so ground-breaking, begin by considering how Internet mash-ups rapidly create new business value by incorporating other organizations’ specialized services via application programming interfaces (APIs). Because sharing-economy companies often begin life as internet mash-ups, they typically get to market faster than otherwise possible by integrating other organizations’ API-based specialised services into their own solution — an approach that all but eliminates the friction in the business relationship.
Industrial mash-ups borrow from those internet mash-ups just as sharing-economy businesses do. Industrial mash-ups also envision sharing industrial services or property (i.e., capital assets) via these increasingly automated methods, in the same way sharing-economy companies so far have focused on consumer services such as car sharing and vacation homes. This last point is central. Like sharing-economy businesses, industrial mash-ups can separate the original value of a service or asset from potential new business value.
For students of technology M&A, this solves a real dilemma by offering tech companies a superior alternative to many mega deals. While scale will continue to be a competitive advantage for many technology companies (hence the growth in big-ticket tech M&A in the last two years), M&A isn’t always the right answer. Increasingly, we see instances in which one company may possess a specialised strategic capability needed by another, but the combination lacks synergies necessary for a viable M&A deal.
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