If digital isn’t a core part of your business then think again. But its not just about acquiring technology or talent to build the ‘digital side of your business’. Success will come through truly integrating digital in the entire business.Fintech News
Recently Economic Times ran a piece titled “Non-tech companies acquiring tech startups rather than starting a software division from scratch”. The title itself wouldn’t really distract one from the usual online sports round up, but the abstract of the article piqued an analytical nerve in me. Basically, Shalina Pillai and Anand J contend that more tech startups are bought by non-tech companies than ever before. And that this trend will continue because of a meeting of minds: tech companies pursue scale which can only come through large corporations or mammoths; and mammoths pursue tech companies to build their digital business. The authors cite a New York Times article from January that actually lends much credence to this statement, where based on data from Bloomberg, just over 51% of all tech companies sold in 2016 were acquired by companies in an industry other than technology.
So what? I asked myself. Isn’t that just the natural progression of businesses wanting to do more in the brave new digital world? Acquire the best technology to be competitively smart and also not go the way of the Dodo? Sure. But the move of mammoths towards digital has been a relatively slow process. In fact, a number of them are still out there defining what digital really means to them. Mammoths suffer from two ailments: they see tech valuations as over-inflated and they see tech as part of their ‘digital department’ rather than the core of their business. The result: that most tech acquisitions by non-tech companies are likely to fail.
Failure is driven in most part by an inability or unwillingness for non-tech mammoths to fully integrate their acquisitions into the whole business, while simultaneously embracing a culture of entrepreneurship eschewed by the acquired. The few that do integrate well, have capitalized on acquisitions that are good for business today, and keep them relevant for tomorrow. An example is the 2016 acquisition of Jet.com by Walmart, a deal which Walmart stated will ‘position (Walmart) for expanded E-Commerce growth and customer reach’. While its still early days, Walmart is making its digital footprint even larger through ‘bolt-on’ tech acquisitions to compete with competitors like Amazon. It is truly embracing digital as the business of the future.
History serves up a lesson for those that do not manage integration well. In 1998, AOL bought Netscape, a web browser for $4.2 billion, one of the largest tech deals of that era. Steve Case, then CEO of AOL boldly said “Netscape’s brand, portal, and people will help turn the promise of electronic commerce into reality.” The last version of Netscape was released in 2008 and most of you probably hadn’t heard of Netscape till now.
Sameer Abdi, Managing Director, Innovura Partners LLC
Sameer Abdi is the Managing Director of Innovura Partners LLC. He had helped clients make informed capital decisions so that their businesses can continue to grow and maintain healthy cash flow through restructuring, divestments, capital raising, and acquisitions.
