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Tech Sector Leans Toward Industrial Mash-Ups

By Rob Starr, Big4.com Content Manager

EY’s most recent Capital Confidence Barometer – Technology (CCB) has found tech executives are not nearly  as  optimistic as they were six months ago, and that they are even facing up to the reality of a low growth economy by adjusting their deal-making and business strategies.

This most recent version of the report surveyed 182 tech executives globally  to find that while 84% of respondents still expect stability or modest growth in the economy this year, there was a 38 point decline among respondents predicting a strong improvement only six months ago (from 39% to 1%). Jeffrey Liu, Global Sector Head, Technology – Transaction Advisory Services for EY, saw the shift as part of the larger economic picture.

“The changes in sentiment generally are just a different manifestation of the recent GDP slow down so you had a large percentage of respondents adopting this slow-growth perspective for

Jeffrey Liu

Jeffrey Liu

the near term. There was also a big drop in respondents that felt like we would return to a fast-growth environment,” he says. “It’s just another voice in the overall economic perspective that says we’re not out of the woods yet.”

In fact, only 52% of these executives are projecting M&A growth and that’s down from 80% six months ago. Liu also points to volatility in the last quarter from a revenue and earnings standpoint.

Market Incumbents

Nevertheless, the nature of the tech industry won’t allow for only dark clouds on the horizon and there’s still a tremendous amount of innovation taking place. The result is a repositioning by market incumbents to the extent factors like the cloud, big data and distributed smart devices allow.

“There’s still an expectation that M&A volume will be fairly robust,”  Liu  says pointing to the influence of Internet and distributed mobile devices over traditional distribution businesses. Other M&A deal drivers include cross-border activity and a trend whereby companies are shifting toward becoming solutions providers rather than the more traditional technology standalone providers.

There’s an overarching trend arising from the research. EY calls the new phenomenon “Industrial Mash-Ups” and Liu explains the concept behind the catchphrase.

“This terms speaks to the idea that to be agile and responsive to the innovation that’s taking place, pure acquisition may not be the only or realistic way. So, we’re seeing a lot more alliance formation and collaboration short of straight M&A.”

The reasons for these strategic collaborations include size constraints and risk factors. You can read more about this Industrial Mash-Ups concept here.

 

 

 

 

 

 

 

 

 

 

 

 

 

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