This article is written by Aishwarya Menon, pursuing Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Lawsikho.
The key to organic growth today for any large company is the acquisition of the right company at the right time at the right price and for the right amount. Although we’re seeing more acquisitions on a larger scale more often than ever before, many studies show that these deals (especially those taking companies beyond their base businesses) do not live up to their advocates’ expectations. Clearly, there is a difference between making acquisitions and making them work. Today large corporations go beyond conventional ideas and acquire companies to increase their market share and diversify. Mergers and acquisitions in the tech space are very common these days. The Economic Times is loaded with M&A articles. The aim of the acquisition is purely to gain access to new markets, products, technology, resources, or management talent as less risky and speedier than gaining the same objectives through internal efforts.
Top ten tech acquisitions
Below listed are the top ten tech acquisitions of all time.
10. Facebook buys WhatsApp ($19 billion, 2014)
WhatsApp is a text messaging app used widely across the world. WhatsApp is an ad-free mobile application. Users can send unlimited messages to their contacts without using the wireless network or sustaining data fees. The app is free to download and is an alternative to the cell provider’s traditional text messaging platform. The app was founded by Jan Koum and Brian Acton, who were former executives of Yahoo! Facebook agreed to pay an amount of $19.6 billion which included an amount of $ 3.6 billion to retain the original employees of WhatsApp. WhatsApp is by far Facebook’s largest acquisition. The acquisition of WhatsApp is considered 20 times larger than Instagram’s acquisition by Facebook. Even though Facebook has not reached the required return on investment on WhatsApp, Facebook does believe it will profit from WhatsApp as phone calls are going to be obsolete in the near future. Mark Zuckerberg paid a whopping amount for the acquisition which was double the amount Google had offered at that time. The main reason to acquire WhatsApp was to increase the user base. Facebook also wants to encash digital payments and by far WhatsApp has the largest network in many countries including India. This is another potential area where Facebook can monetise its investments.
9. Microsoft buys LinkedIn ($26 billion, 2016)
LinkedIn is the most valued professional networking platform today. It was acquired by Microsoft in 2016 for an estimated amount of $26 billion. LinkedIn has other subsidiaries which are LinkedIn Learning, LinkedIn Singapore Pte. Ltd, LinkedIn Australia Pty Limited etc. LinkedIn is a career-focused social networking platform that is mainly focused on business relations and is employment-oriented. It has a 400 million user-base in over 200 countries. The company provides most of its services free of charge. Its paid services can be divided into three product lines: Talent Solutions (including Hiring, and Learning and Development); Marketing Solutions and Premium Subscriptions. LinkedIn is a US-based tech company and was listed on New York Stock Exchange before the acquisition. LinkedIn makes money through its talent solutions, marketing solutions, and premium subscriptions. It makes money by selling advertising, recruitment services, and membership privileges. LinkedIn’s revenue has increased on a year-over-year basis since 2017. LinkedIn has seen a 25% year-on-year growth and had a revenue of $2.05 billion in the third quarter of 2020.
8. Salesforce buys Slack ($27.7 billion, 2020)
Salesforce, a Customer Relationship Management platform acquired Slack for $27.7 billion making it one of the highest bids in the history of tech acquisitions. The company made an annual revenue of $20 billion before the acquisition of Slack and is forecasting increased revenue in the future post-acquisition. Salesforce and Slack together plan to shape the future of enterprise software and transform the way digital platforms work. Slack is a platform that aids intra and inter-communication between employees. Communication is pertinent for the smooth flow of information in an organisation and Slack empowers employees to do the same. The valuation of Slack according to experts was a little above $25 billion. The deal was struck at $27.7 billion which implies that it was well negotiated. The deal helped bring Salesforce at par and in competition with Microsoft’s Teams. The uniqueness of Slack is the easy ability to integrate with other enterprise software. When combined with bots, these intelligent digital helpers can potentially provide Salesforce customers with a central place to work without changing focus because everything that is required to be done is possible on Slack.
7. SoftBank buys ARM ($32.3 billion, 2016)
Softbank surprised the tech world by acquiring British chip designer ARM Holdings for $32.3 billion in 2016, which was the largest ever purchase of a European technology company. ARM was delisted from London Stock Exchange after the acquisition. ARM is known for designing chips and licensing them to companies like Apple and Samsung. ARM-designed chips dominate mobile computing and microprocessors in phones and tablets. The acquisition of ARM will help Softbank bolster its Internet of Things space. The acquisition of ARM was a clear long-term objective of Softbank. In 2020, NVIDIA acquired Softbank’s ARM for a whopping $40 billion which made it the second-largest acquisition in terms of value in the tech world.
6. HP buys Compaq ($33.6 billion, 2001)
HP (Hewlett-Packard) acquired Compaq Computer in a stock swap worth $33.6 billion in 2001. CEO Michael Capellas and four other board members joined the board of HP. This was a horizontal acquisition that enhanced HP’s market share. The deal was approved by the board of directors of both companies unanimously. Compaq shareholders received 0.6325 of newly issued HP shares for each share of Compaq. HP shareholders now own 64 per cent and Compaq shareholders own 36 per cent of the combined company. The combined entity, which will be known as Hewlett-Packard, will be based in Palo Alto, California, HP’s hometown, and retain its presence in Houston, where Compaq is headquartered. The acquisition will help HP have a global presence in more than 160 countries with 145,000 employees and workers will have annual revenue of $87.4billion. The merger helped in cost synergies and economies of scale. The supply chain management of both entities improved after the merger. The merger helped improve Compaq’s manufacturing of PCs and low-cost servers to a full-service computer provider with high-end hardware, chip technology and international services. But with time the merger failed and HP began incurring heavy losses due to overlapping product lines and ineffective management. On August 1, 2015, HP split into two companies: HP Enterprise, which primarily sells servers, storage, services and software businesses, and HP Inc., which sells PCs, printers and other consumer products.
5. IBM acquires Red Hat ($34 billion, Oct. 28, 2018)
On October 28, 2018, Red Hat was acquired by IBM for $34 billion with the aim to expand its open-source platform and hybrid cloud solutions to provide true choice and agility. IBM’s acquisition of Red Hat will help it do more work in the cloud space, one of its four key growth drivers, which are also social, mobile and analytics. The company is behind Amazon and Microsoft in the cloud infrastructure business and is hopeful to improve its cloud business post-acquisition of Red Hat. IBM has optimized over 100 products for OpenShift and bundled them into what it calls “Cloud Paks” after the acquisition. There are currently five of these Paks: Cloud Pak for Data, Application, Integration, Automation and Multi-Cloud Management. These technologies, which IBM’s customers run on AWS, Azure, Google Cloud Platform or IBM’s own cloud, among others, include DB2, WebSphere, API Connect, Watson Studio and Cognos Analytics. Red Hat is unlocking innovation with Linux-based technologies (which is IBM’s source technology), including containers and Kubernetes, which became the elemental building blocks of the hybrid cloud environment. The development of the cloud over the years has been crucial. IBM plans to move its critical projects to the cloud and Red Hat has been in this space for years with crucial developments which will affect IBM in the future. After the acquisition, IBM launched a fully managed Red Hat OpenShift service on its public cloud platform along with OpenShift on IBM Systems which includes IBM Z and LinuxONE mainframes and also launched its new Red Hat consulting and technology services.
4. AMD acquires Xilinx ($35 billion, 2020)
In April 2021, AMD and Xilinx shareholders approved a merger worth $35 billion. Both companies are engaged in chip-making and the merger was horizontal in nature. AMD paid $1.7234 shares for each Xilinx share. The acquisition was to leverage on each other’s strengths and grow in the new era of high performance and adaptive computing, which is a growing contemporary technology domain. The acquisition brings together two industry leaders with complementary product portfolios and customers. AMD will offer the industry’s strongest portfolio of high-performance processor technologies, combining CPUs, GPUs, FPGAs, Adaptive SoCs and deep software expertise to enable leadership computing platforms for cloud, edge and end devices. Together, the combined company will capitalize on opportunities spanning some of the industry’s most important growth segments from the data centre to gaming, PCs, communications, automotive, industrial, aerospace and defence. Xilinx offerings are leading FPGAs, Adaptive SoCs, accelerator and SmartNIC solutions which enable innovation from the cloud to the edge and end devices. With this merger, the company can plan to deploy differentiated platforms with optimal efficiency and performance to pursue a broader customer base across more markets. With a combined team of 13,000 talented engineers and over $2.7 billion of annual1 R&D investment, AMD will have additional talent and scale to deliver an even stronger set of products and domain-specific solutions.
3. Avago buys Broadcom ($37 billion, 2015)
Avago acquired Broadcom during a cash and stock transaction for $37 billion and therefore the combined value of both the businesses was $77 billion after the acquisition. After the completion of the merger, both companies together will have the most diversified communications platform within the semiconductor industry, with combined annual revenue of roughly $15 billion. Avago and Broadcom together create a worldwide diversified leader in wired and wireless communication semiconductors. Avago has always been successful in integrating companies onto its platform. Now with Broadcom, the level of profitability is expected to increase in the coming future. The merger meets the long-term objectives of Avago. Under the terms of the definitive agreement, Avago acquired Broadcom for $17 billion in cash consideration and the economic equivalent of approximately 140 million Avago ordinary shares, valued at $20 billion as of May 27, 2015, leading to Broadcom shareholders owning approximately 32% of the combined company. The merger was brought into effect by a simple stock exchange in the holding company, here Avago.
2. NVIDIA acquires Arm ($40 billion, 2020)
NVIDIA struck a deal with Softbank to acquire U.K. based semiconductor and software design company Arm Ltd. for $40 billion, making it one of the biggest acquisitions in tech, in September 2020. Keeping AI innovations in mind NVIDIA acquired Arm from Softbank to further expand its internet-of-things all over the world. The planned expansion covers smart retail, manufacturing and service robots, to self-driving cars and smart cities. Behemoths like Google and Microsoft opposed the deal since it required approval from authorities which included mainly the four governments of the U.S., U.K., E.U., and China. Qualcomm was unhappy with the deal and was fighting from the very beginning as the company heavily depends on Arm for microprocessor intellectual property (IP). ARM holds intellectual property rights for more than 90% of smartphones/mobile processors. The deal will help NVIDIA gain control over Apple and Microsoft, ARM’s biggest customers. The deal faced a lot of scrutiny from different agencies of the UK and US, but finally, the deal was struck in September 2020.
1. Dell buys EMC ($67 billion, 2015)
The largest-ever tech acquisition to back the number one position in the article is the EMC acquisition by Dell for the highest amount of $67 billion in 2015. Dell’s decision to buy EMC for $67 billion remains the largest pure tech deal in history, but a transaction of such magnitude created a debt for its primary backer, Silver Lake. The motive behind this takeover was to combine the individual strengths of both the respective companies who were market leaders in their own space at that time. The deal brought together the leading provider of key computer storage products which was EMC and the top maker of servers and personal computers which was Dell. The acquisition was to facilitate Dell to become a one-stop solution for business customers. The combined Dell EMC was named Dell Technologies. It will continue to operate privately as it has since the 2013 leveraged buyout of its company. The culmination of this has been the single largest M&A deal the technology marketplace has ever seen, one that has resulted in a combined value of $ 80 billion to become the biggest single vendor of personal computers, servers, software and storage equipment in the world.
Earlier, big companies used to split into smaller companies to sustain but now mergers and acquisitions is the best inorganic method chosen by companies to diversify and grow. This has proven to be a very successful method for Tech companies since they can leverage each other’s strengths and become market leaders in their space. It remains to be seen for how long this will continue till there is a new paradigm that gets introduced in the future. After all, the only thing permanent in the world is change and we need to reinvent ourselves continuously to survive in the global market.
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