Technology is part of almost everything consumers do. This has resulted in a seismic shift in the kinds of deals being done between businesses. It’s now far less easy to predict the types of businesses that will purchase certain targets. Smaller tech firms are no longer just being bought by larger tech firms. Now, their acquirers can come from almost any industry. In fact, the trend for businesses in non-tech industries buying up tech businesses in order to embed technological capabilities in their offering has become so normalised, it has a name: technological convergence.
What is convergence?
Convergence is the term used to describe two unrelated entities coming together. Within the business, technology or M&A space the term ‘technology convergence’ is used to describe the scenario when two unrelated technologies merge into one service or device. Within the M&A space specifically, convergence often means two unrelated sectors merging together through a deal. Industries are constantly having to reassess consumer needs and evolve to fulfill these and buying up tech firms is helping them to do this.
Technology is disrupting industries left, right and centre. We’ve all witnessed this in our day-to-day lives at work and at home. Everything from the way consumers bank and shop, to the way they pay their window cleaner, chat to friends, or find local services has been impacted by technology.
Meanwhile, businesses are benefiting from technological advances that help them to automate manufacturing processes, find staff, improve the effectiveness of their marketing or do their accounting. Tech is everywhere.
Anyone running a business now knows that unless they keep up with the latest technologies affecting their industries, they may not survive. As a result, some are acquiring technology firms that have developed apps or tools that make their business stand out from the crowd, improve efficiency, or simply make life easier for themselves or their customers.
Case studies
Beauty giant L’Oreal recently purchased a technology firm called ModiFace, which develops augmented reality tools for consumers. The tools allow users to see how they could look with a variety of different hairstyles, or colours, for example. Although ModiFace has worked with a range of beauty and healthcare brands, one of its more high-profile partnerships was previously with L’Oreal, in the development of its Style My Hair app. Since the purchase, L’Oreal has launched another app using the ModiFace tech, called the Virtual Nail Salon, which allows users to ‘try’ different nail colours and styles.
Another example of technological convergence through acquisition is Co-Op Group’s recent purchase of healthcare tech firms Dimec. The deal was carried out through the new Co-Op Ventures arm, which has been specifically launched to develop challenger businesses to help Co-Op compete in an increasingly technology-driven world. Tim Davies, the Director of Co-op Ventures explained: “The clear focus for our Ventures team is to target markets where there are unmet customer needs and where our Co-op difference adds real value using innovative digital business models.”
This first acquisition by Ventures is a “clear statement of intent to develop new and innovative customer solutions in the health sector”, according to Co-op.
Dimec has developed technology that allows patients to more easily order prescriptions by pairing with their GP Practice and their pharmacy. Co-Op will now be able to offer this service to its members and customers as standard.
Where do we go from here?
Well, the consensus seems to be that convergence will continue and that it will be a clear driver of acquisitions over the coming years. Analysts are convinced that innovations such as augmented reality, artificial intelligence and the Internet of Things will become increasingly mainstream, merging the technological and physical worlds even further. As this convergence takes place, the result is bound to be the greater convergence of technology with other industries.
Convergence in action
Technology is now ingrained in day-to-day life for most consumers and, as a business owner, it’s sensible to keep an eye out for opportunities to make acquisitions that will either put you in a position of strength within your sector, or save you some money in the long run. Innovation, competition and cost saving is driving technological convergence and the benefits of this aren’t just for large corporations, like L’Oreal and Co-op to enjoy.
Businesses of all sizes can boost their offering through convergence. Acquiring businesses that can enhance your technological capabilities can help you to compete and protect your business against changes in the market that come about as a result of the growing reliance on technology.
Savvy business owners will be on the lookout for targets who could help them to manufacture their product more efficiently, or market their product more effectively, for example. You could consider buying a small business whose technology you use regularly, or whose marketing tech tool you use to promote your services to customers, for example.
Becoming a tech firm, as opposed to simply using a tech firm, may future-proof your business, help you to diversify and open up whole new revenue streams.
Also read: AI in M&A: How can buyers and sellers harness the technology?
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