Tech market overview
We’re set to enter a new frontier of socialisation, information security and artificial intelligence (AI). This can be seen in the rise of self-driving cars, and the interactions already taking place in the ‘metaverse’. It’s also evident in the number of start-ups that gravitate towards the tech industry
Further, the mechanisation of the workforce, as well as the digitisation of social interactions, has boosted the growth of the industry. As a result, many companies have ramped up efforts to adapt to the evolution of technology. This is why so many organisations have set their sights on the acquisition of popular tech start-ups.
According to a recent report, the annual tech acquisition spend in 2021 soared above $1 trillion.1 If the trajectory continues, 2022 will set a new record.
What is an acquisition?
An acquisition is when one company takes over another – either in its entirety, or a majority share thereof. There are two ways to acquire a company: through a hostile takeover or a friendly takeover.
A hostile takeover is the term used to describe when a company is bought by another without its consent. Generally, the buying company purchases a majority amount of shares to get a controlling stake in another company.
On the other end of the spectrum, there’s a friendly takeover, when both companies agree to the terms of the acquisition. Note that an acquisition and a merger are also two different concepts.
A merger refers to when both companies find value in combining forces where there’s synergy in the product or service offered and they wish to come together as equals.
Why do tech companies merge with or acquire other companies?
- Tech companies that seek to gain a competitive advantage in the market will opt to merge or acquire a company with a new piece of tech
- To achieve economies of scale, tech firms may increase the size of the business by acquiring a company that’ll ensure that there’s a lower cost of production
- Companies in the tech sector may acquire another company that owns or produces different parts in its value chain
- An acquisition may occur if a tech company wants to cross sell a product that another company has to offer its consumers a broader range of products
- Typically, especially in hostile takeover, tech companies acquire smaller companies to get rid of the competition by offering the investors an offer they can’t turn down
Differences between mergers and acquisitions
| Mergers | Acquisition |
| A merger involves the formation of a new organisation from two companies that join forces. | An acquisition is generally represented by a bigger company that incorporates a smaller business under one umbrella. |
| The newly formed organisation will have representation of the two joint companies in managerial positions as well as ownership. | With acquisitions, the smaller company will cease to exist; however, the operations will continue to be performed under a new banner. The organisational structure does not change when a larger business acquires a smaller company. This is apparent whether in a friendly or hostile takeover. |
| Mergers don’t necessarily involve any exchange of cash. Equity of the new organisation is distributed according to the terms of the agreement. | Acquisitions are carried out with large amounts of money required to either have a controlling stake or purchase the company outright. |
| The connotations of a merger are usually positive, with two companies joining forces to provide a superior product or service. | The intentions behind an acquisition may be negative in nature, such as to eliminate competition. |
The 10 biggest tech acquisitions
- Activision Blizzard
- EMC
- Broadcom
- Xilinx
- Red Hat
- Slack
- Compaq
Activision Blizzard
Microsoft announced its intention to acquire Activision Blizzard for $68.7 billion. The revelation was made in January 2022 to acquire the company responsible for titles such as Call of Duty, World of Warcraft and many other popular gaming franchises.
The acquisition was driven by Microsoft’s pursuit to give its video gaming brand Xbox an advantage in the market. In light of that, the deal is still under review by the Federal Trade Commission (FTC) to investigate if the acquisition will be in breach of competition law.
The acquisition is expected to be finalised in Microsoft’s fiscal year 2023, and if regulators approve, Xbox will have exclusive ownership of some of the video gaming industry’s biggest franchises.
EMC
Tech company Dell announced the acquisition of EMC Corporation in October 2016 for a world record (at the time) $67 billion. EMC developed, sold, and stored data management hardware and software to its customers.3
At the time, Dell had to take on $50 billion in debt to acquire EMC. On the other hand, activist investors Elliott Management put pressure on EMC to sell its most valuable parts, VMware2 to boost the share price.
The acquisition has meant that Dell rebrands to Dell EMC and wouldn’t only focus on hardware but would also add the software segment in its portfolio.
Elon Musk shocked the social media world when he announced his intentions to acquire Twitter. According to the Securities and Exchange Commission (SEC) filing, Musk reached out to Twitter founder Jack Dorsey and one other director to discuss ‘the future direction of social media’ as early as 26 March 2022.4
The CEO of Tesla has always been transparent and vocal throughout the entire process. He publicly told Twitter executives about his aspirations to make the social media app private, a conversation he could broach after buying a major stake of more than 9% of Twitter stocks.
Twitter stocks surged more than 27% after the announcement. The share price has since dropped following a tweet Musk posted that his $44 billion takeover bid is ‘temporarily on hold’ as he investigates the accurate number of spam and fake accounts on the platform.
Broadcom
Chipmakers Avago Technologies and Broadcom inked a merger valued at $37 billion. Avago offered Broadcom shareholders $17 billion in cash and stocks valued at around $20 billion in October 2020.5
Broadcom creates semiconductor solutions for wired and wireless communication, supplying connectivity chips to popular smartphone brands such as Apple and Samsung.
Following the acquisition, the joint company is now valued at $77 billion in enterprise value while the combined annual revenues of approximately $15 billion.5
Xilinx
Advanced Micro Devices (AMD) acquired Xilinx for approximately $50 billion. The announcement was made in October 2020, with the deal viewed to propel AMD as the ‘industry’s high-performance and adaptive computing leader’.6
AMD designs semiconductors and acquired Xilinx for its system on chips and field programmable chips. Originally, the deal was valued at $35 billion, however, the rise of AMD's stock caused the value to rise. Following the purchase, AMD’s share price rose by more than 4%.
Red Hat
IBM announced its acquisition of Red Hat in July 2019, a deal intended to enable IBM to scale to meet the need for hybrid cloud solutions that deliver true choice and agility.7
The deal was valued at $37 billion, which included all issued and outstanding common shares of Red Hat. At the time, IBM cloud revenue for the 12-month period through the first quarter of this year grew to over $19 billion.7
The Red Hat acquisition has been able to perform well as an open-source software company after the acquisition, while other IBM systems are on the downward trend.8 This is because the legacy system is slowly being phased out in the market while IBM cannot replace fast enough.
Slack
Software company Salesforce signed an agreement to acquire messaging app Slack Technology in December 2020 and finally closed the deal in July 2021 valued at $27.7 billion.9
Following the acquisition, Slack beat estimated projections for the first full quarter, reporting $280 million in revenue during the quarter, which was $30 million higher than guidance.10
The performance was driven by a number of customers who spent over $100,000 going up 44% year over year.10
Microsoft sought to add another platform to its suite of products and acquired LinkedIn for over $26.2 billion in June 2016. At the time, Microsoft was going through a rough patch, having changed CEOs as well as acquiring Nokia which didn’t pan out as expected.
Microsoft retained the services of LinkedIn CEO, Jeff Weiner and under the stewardship of new Microsoft CEO Satya Nadella, the company was profitable for the next four quarters.
Compaq
Hewlett-Packard (HP) and Compaq agreed to merge in a stock swap deal worth approximately $25 billion in March 2002. The synergy between the two giants in computer and printer development was palpable, with the new organisation expected to give IBM a run for its money.
At the time, the deal would save them $390 million in fiscal 2002, with that figure growing to $2 billion in fiscal 2003. In the same breath, the chief financial officer (CFO) of HP, Robert Wayman noted that loss in revenue was expected. The decline was projected to be less than 5% in the next two years.12
In February 2014, Facebook (now known as Meta Platforms) acquired instant messaging app WhatsApp for a price tag initially reported at $19 billion. This acquisition was hot on the heels of its purchase of Instagram back in 2012 to bolster its Family of Apps segment.
Facebook’s motivation to acquire WhatsApp was driven by the app’s growth in percentage of market reach.11 Following its integration into the Family of Apps ecosystem, Facebook’s stock rose and an additional $3 billion was added to amount to a total of roughly $22 billion.13
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Biggest tech acquisitions summed up
- The mechanisation of the workforce, as well as the digitisation of social interactions has contributed to the biggest tech mergers and acquisitions in history
- An acquisition refers to when one company takes over another – either in its entirety, or a majority share thereof
- Tech companies acquire or merge with other companies for several reasons such as gaining a competitive edge over the industry, achieving economies of scale and many other reasons
- The difference between a merger and an acquisition is that a merger is the formation of an entirely new organisation from two companies joining forces while an acquisition involves a bigger company that takes over a smaller business and incorporates it under one umbrella
- You can trade on tech acquisitions with us via CFDs
Footnotes
1 S&P Global
2 Wall Street Journal
3 Forbes
4 SEC filing
5 Globe News Wire
6 AMD
7 IBM
8 Next Platform
9 Yahoo Finance
10 Market Watch
11 Buzz Feed News
12 CNET
13 Reuters
