Key takeaways

  • To grow, companies must explore new approaches to mergers and acquisitions.
  • This may mean becoming part of larger networks, keeping an eye on algorithm-driven new markets, or collaborating with the competition.
  • Old business models should be re-examined as technological sophistication changes the rules of play.

 

Why do some tech companies grow a lot faster than others? It’s evident by the trajectory of some top high-growth tech firms, such as Google and Amazon, that these companies don’t just dominate existing markets. They actually create new ones, using M&A to assemble critical elements that help generate new revenue and exceptional growth.

To capture growth in an increasingly technologically sophisticated world, dealmakers need to be open to shedding long-held beliefs on what makes companies successful. Three trends in the tech landscape illustrate some of these new ways of thinking.

1. It’s now about
networks

The smartest deals anticipate how markets and industries will evolve in the future. If dealmakers want to understand the future of business, they need to evaluate companies through a new lens, as the prevalence of social networks now influences virtually every industry.

Gone are the days when firms could operate as standalone companies. Increasingly, they’ve become network platforms that directly connect buyers with sellers, eliminating the inefficiencies and costs of middlemen. Consider Amazon, which has created a vast marketplace for third-party sellers able to deliver products the next day.

Network platforms will shape the future of business and the broader economy. As dealmakers assess which investments will drive growth, it will be crucial to understand how these platforms work, as well as how they will impact broader industries.

2. Algorithms now run
the ‘free’ market

US innovation, in particular, has long thrived on the assumption that economies are usually better off if they’re left alone. But algorithmic technologies are quickly changing the concept of the free market and the laws of supply and demand. Increasingly, sophisticated computer calculations are influencing consumers and therefore how companies go to market.

By curating the content visible to us, algorithms influence how companies market and sell their products and services. However, since not all content is accurate or fair, this can complicate how businesses operate and market to consumers.

This doesn’t mean that technology will replace humans. Tech will create new markets and opportunities, which is worth bearing in mind as investors evaluate potential deals and assess how they can grow in the coming years. Algorithms are still learning from the everyday actions of humans, but they will increasingly shape virtually all corners of business – from the products and services we buy to the content we read.

3. Don’t try to beat them,
join them

Advances in technology have created unprecedented opportunities to form new and sophisticated markets. Companies can’t simply add an app to get ahead. That’s essentially how the taxi industry responded to the growth of on-demand transportation services, but it quickly became clear that most cities couldn’t replicate those platforms’ 24/7 supply of on-demand drivers.

The lesson here: As companies look to get into the ‘next big thing,’ they should join the competition rather than trying to beat them at their own game. 

So, for example, while taxi companies could create an app and try to compete in the increasingly competitive game of ride-hailing services, they could have more luck if they took a step back and found new ways to operate with those services. This is where partnerships could make sense –  in cases where both sides can benefit from each other by sharing technological know-how, scale, brand recognition or other assets that are in high demand.

Looking ahead
at tech deals

If we look at the latest M&A trends, it’s clear that technological sophistication has driven many companies to reinvent their old business models. For example, in 2018, about 40 percent of tech company acquisitions were made by companies in other industries, led by consumer, media and telecommunications, and finance. This trend will likely continue, so it’s up to those making tech deals to rethink what makes a good deal and how different kinds of transactions can lead the way in creating new markets.

 

Digital Pulse: Marc Suidan

Contributor

Marc Suidan

Marc is the PwC US lead partner for Technology, Media and Telecoms M&A.

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