Technology is no stranger to economic upswings - from the Industrial Revolution through to the internet boom of the late nineties and early 2000s, the sector has enjoyed more than its fair share of success stories.
The driving force behind these periods of rapid growth was the exponential evolution of technology. But this alone was not enough to ensure profits for the individual companies operating in these times. Many of the businesses that were successful identified the greatest problems of the time and then used the newly available technology to provide the best solution.
Today, successful technology businesses are operating along the same principle, taking time to address the challenges faced by humanity on one or more levels and implementing the most attractive and effective technology-based solutions to these issues. LinkedIn followed this principle when it realised that professional people wanted their own social network where they felt comfortable talking shop with their peers.
If capital is available, acquisitions are often the more expedient option. Identification of a problem is still the requisite first step, however rather than building a solution for the market, the challenge is to find and acquire an organisation or team that is already well down the road towards creating that solution. Facebook’s multi-billion dollar purchase of WhatsApp is an example. LinkedIn’s purchases of Slideshare and Lynda.com is another.
The Fast Track to New Markets
The aim of pursuing this inorganic approach is to fast-track growth and unlock another level of profit. Granted, Facebook and WhatsApp are at the ‘big numbers’ end, but this acquisition strategy is one that can be applied across the market. Through buying companies to accelerate problem-solving endeavours, a smart business strategist can work on delivering highly profitable new services or products that would otherwise take years to bring to market due to the lead time of technology development.
This approach avoids the inherent delays involved in building new technology from scratch, allowing companies to spend more time focusing on market trends.
From this point, the company can either focus on pursuing the 'Next Big Thing' in their sector, or use the technology to streamline and potentially automate a section of their business without diverting resources away from their core services.
Below is an exploration of three major sectors, highlighting areas in which the potential to solve problems with technology acquisitions is being realised, opening up new avenues to profit.
Pharmaceuticals
Pharmaceuticals is a sector in which technology is often demonstrably visible in action. Through the advancement of robotics, large research companies are able to automate more and more of their standard research and testing procedures. Not only does this improve safety enormously by removing the risk of employees coming into contact with hazardous materials, but it frees up these educated and highly-trained teams to work on new projects and developments.
Julie Huxley-Jones, head of automation at GSK's R&D platform technologies, is at the forefront of development in this sector. She was quoted by the Financial Times as saying: “We're really trying to accelerate our use of automation across R&D and capitalise on the major technology changes that have happened in recent years.
“We can go from doing something at the scale of human control down to repeating that experiment thousands of times smaller using robotics and therefore we can make more out of those samples.”
In the case of big pharma companies, robotics manufacturers and developers are hot acquisition targets. While businesses the size of GSK might have the resources to invest in the development of their own robotic systems, the need to deliver a new drug to market ahead of the competition will generally take precedence for internal resource allocation, making the option to acquire an operational robotics company an appealing tactic to enable them to jump up a level, work faster and pursue new markets and profit sooner.
Energy
In the energy sector, much technology investment at the moment is focused on safety. On a larger scale there are naturally still great developments being made in the pursuit of the best ways to generate and access new energy sources. But huge resources are being allocated to the problem of how to improve and streamline daily operations in a safe manner. One technology trend here is the use of drones in carrying out safety inspections in power plants.
Companies like Blue Bear Systems Research are pioneering the development of the 'brains' for drones and their technology is being used to great effect for inspections in nuclear power stations.
The intricacies of the technology behind these drones has taken years to develop and already combines the experience and knowledge of numerous teams and businesses. For energy companies looking to cut labour costs and increase reliability by delivering their own safety inspections with drones, acquiring a small company like Blue Bear could be an excellent way to improve business processes within the company.
Retail
Automation is proving to be a major technology requirement in the retail industry, arriving a little later than other sectors. Companies like Ocado are leading the way in investment in automated picking and packing systems that should reduce the need for behind-the-scenes staff in their warehouses.
However progress is slow and costly and the company has applied for funding from the European Union's 2020 Horizon project to finance further development of its automated systems.
Ocado is somewhat infamous for its troubled pursuit of profits, having only recorded its first full-year net surplus in 2015 after 15 years in operation. If it wins its funding, it will be interesting to see whether it opts to pursue tech development in-house, or take a more confident approach and consider acquiring an existing technology firm that has already done the hard work and developed these automated systems, saving significant time in delivery.
Amazon has done just this with numerous technology companies over the years. In 2012 it purchased Evi, a Cambridge-based software company with a focus on artificial intelligence and natural language, dubbed an 'answer engine'.
Evi was originally known as True Knowledge and officially launched in 2007, but several years of development took place before this official launch. By snapping up Evi in 2012, Amazon gained instant access to technology that had taken years to build, enabling the retailer to focus on how best to meet the needs of its customers as the basics had already been laid down.
Ask the Right Questions
No matter what the sector, the greatest profits will always come from providing the best answers to the right questions. Not so long ago a business could have made a significant amount of money by delivering a perfect communications and management system for a taxi company. Now, the question 'what's the most efficient way to run a taxi company?' is barely worth posing with Uber already transforming the market. Even further transformation is on the horizon with the imminent launch of automated cars.
Pablo Picasso probably didn't know a huge amount about mergers and acquisitions, but his art captured something essential in humanity and he often spoke on topics with a remarkable level of insight. Take his observation on technology, for example:
“Computers are useless. They can only give you answers.”
The artist's quip cuts through the noise to identify the key to making big money from technology: no matter how clever and automated the machines we create may be, they still need us to identify the problem that needs solving in the first place. This is the secret to making millions from technology; pick the right problem to solve, and you've already achieved the most important stage in maximising your profits.
What acquisitions enable businesses to do is to fast-track their delivery of the solution to a problem and thereby create market value. The need to spot the right problem to solve is still there, but if you can buy a business and use the technology it has developed over a long period to solve a current and pressing problem quickly, you could just be on to your next big earner.
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