A year of consolidation
We take a look back at some of the year's most defining high-tech deals.
At the beginning of a new year, maybe it’s time to take stock. 2017 was a good year but not the most impressive one when it came to high-tech deals. An EY report projected a year-over-year decrease of 9% in volume and 34% in value.
There have not been major changes nor unexpected twists. It has been a year of consolidation, at least for the Big Five, Alphabet (Google), Amazon, Apple, Facebook and Microsoft. These US-based super competitors had all already started to explore new business areas and their 2017 acquisition activities reflect this double strategy: strengthening the advantage in their own fields and the purchasing of new firms in order to open new ways into new markets.
Google, for instance, have bought the Swedish firm Limes Audio to improve Hangouts’ audio quality, end distortions and echo on video calls. Yet they have also continued to invest in AI by buying two specialized startups such as the Bulgarian AI Matter and the Indian Halli Labs. They have increased their arsenal as far as AR/VR is concerned too: securing VR game studio Owlchemy Labs.
But the search engine giant is not happy with just providing its operative system, Android, to billions of smartphones all over the world. Now the Mountain View giant wants more: to make it in the lucrative smartphone market. It withdrew the not particularly well received Nexus line and launched the new Google branded smartphone Pixel. And of course there is more to come, since in September it sealed a $1.1 billion deal with Taiwanese HTC to transfer its 2,000 unit strong R&D team under Google’s umbrella, and the newly acquired researchers are likely being put to work on the next Pixel project. Christmas sales confirmed that Google is becoming serious competitor to both Apple and Samsung as Pixel 2 sales surpassed those of both the iPhone X and Galaxy Note 8.
This surprise leads us to Apple. The company was involved in nine M&A operations. Some of them don’t add much to what we know about the Cupertino giant. The recently bought music recognition app Shazam, for example, with its finely honed algorithms, its huge database and its AI technology seems to perfectly match the needs of Apple Music, which is constantly dwarfed by Spotify. But Shazam is a valuable ally in a more important war against Google and its new ambitions as a smartphone manufacturer. Pixel 2 has a new app, Now Playing, which is able to recognize the music being played in the nearby, even when the phone is offline.
In 2017, Apple also bought Workflow (an automation and scripting app) the AI firm Lattice Data (a $200 million operation, according to rumors) and the small French AI startup, Regaind, which has developed software for facial and photo analysis that makes it possible to recognise the emotions of the person pictured, assess technical and aesthetic values and search for very specific photos. While all these acquisitions seem to help Apple to enhance their products which we already know about – one other acquisition suggests new paths the computer giant may take in a near future. Vrvana, a Montreal based AR/VR startup that was acquired by Apple last month, have developed a headset called Totem that can create hugely credible mixed reality experiences. Its website reads that can offer the highest field of view “at the highest resolution, faster than the human eyes can perceive”. This is not the only sign of Apple’s move into the AR/VR space: the recently launched iOS11 contains ARKit, a platform which helps developers to create AR/VR apps for the iPhone. Rumor has it that Apple may present its own headset by 2020, and it seems that this acquisition has re-ignited them.
Speaking of smartphones, one cannot help thinking about the world’s most dominant social media, Facebook. Mark Zuckerberg’s brainchild has been less active than Apple and Google but completed two of its main aims. The first was the acquisition of Ozlo, an AI conversational startup that could prove useful to Messenger and its 1.2 billion users, since it would transform the chatting app into a chatty assistant able to answer questions through the combined use of AI and machine learning. Two months later, Facebook bought a another, more anonymous social media, tbh, with around 5 million users, mainly Americans and high school students.
Microsoft, for its part, have conducted 9 acquisitions covering many areas: from a living photo app startup Swing Technologies (to maximize the photo and video experiences of Skype users to turn it into a Snapchat competitor), to cyber security with the Israeli tech firm Hexadite, to virtual reality (AltSpace VR) and 3D gaming (Simplygon), as well as container management cloud computing (Cloudyn, Cycle Computing and the open source company Deis) in order to boost its own public cloud Azure.
The list is incomplete but before seeing what Amazon has done in 2017, let’s visit the other tech megafirms not to be forgotten. Oracle, whose M&A operation revealed how much cloud computing counts in its business strategy (in fact, all software maker 2017 acquisitions targeted firms operating in this tech sub-sector) when they acquired Apiary and Wercker, paid $850 million to get hold of Moat, the digital cloud measurement and analytics platform, and spent approximately $1.2 billion to buy Aconex, the cloud based construction management software.
The billion dollar threshold was passed, twice, by Cisco Systems, who spent $3.7 billion to acquire AppDynamics Inc – a company which delivers well reputed software in application and business performance management. Another takeover confirmed that Cisco is pushing hard to make it into the collaboration software market: that of Broadsoft – bought for $1.9 billion. The software maker has developed communication systems and tools that help people work together. Viptela ($610 million), another company acquired by Cisco, built its reputation delivering software-defined, wide area networking (SD-WAN) solutions.
Hewlett Packard Enterprise didn’t rest on its laurels either; it completed the acquisition of three American companies (in the first three months of the year) and injected many resources into these operations. While is not known how much it paid to acquire Cloud Cruiser, a leading provider of cloud consumption analytics software, we know that it offered $650 million in cash to absorb SimpliVity, a company specialized in hyper-converged infrastructure, which means combining networking, storage and computing capabilities into just one system. HPE spent $1.1 billion dollars to bring home Nimble Storage, an all-flash and hybrid-flash storage solutions provider. As HPE CEO and President Meg Whitman explained, the move was meant to complement and strengthen the company’s 3PAR products in the high-growth flash market and to make Hybrid IT simple for its customers.
In June came a very big news: Verizon bought Yahoo (and AOL) for $4.48 billion with the aim of creating a new company, Oath, a Verizon subsidiary which is “a diverse house of more than 50 media and technology brands that engages more than one billion people around the world,” – a Verizon press release said. The telecom giant is trying to grow into the digital ads market, so far dominated by Google and Facebook. The American conglomerate made clear that it’s not competing to simply be the number three.
As in 2016, it was a deal involving an automotive chip maker that would turn out to be one of the most expensive acquisitions of the year. In 2016 it was that of NXP Semiconductors by Qualcomm ($47 billion), and in 2017 was that of Israeli MobilEye by Intel ($15.3 billion dollars) to boost the latter’s Automated Driving Group.
Although not as expensive as those just mentioned, the $350 million deal between the German software giant SAP (the buyer) and the US-Israeli firm Gigya is worthy of a mention. The move aims to strengthen the former’s e-commerce division, Hybris, since the acquired “customer identity and access management” company is currently used across hundred of sites in order to check 1.3 billion customers identities.
Another tech subsector whose M&A marketplace has shown a feverish activity is Fintech, where technology meets money. According to the first three Pulse of Technology reports (Q1, Q2, Q3)released this year by the global consultancy group KPMG, 220 M&A operations have been sealed in the first three quarters of 2017, for a combined value of $12.6 billion. FirstData has been one of the most active players in this market. The payment technology solutions company from Atlanta has acquired CardConnect, a payment processing technology provider with over 67,000 customers whose transactions total more than 26 billion per year. The firm paid $750 million to seal the deal and other $760 million to buy another former distribution partner, BluePay. The ratio behind those operations was explained by FirstData CEO, Frank Bisignano, “We believe BluePay’s best-in-class integrated Card-Not-Present solutions, combined with CardConnect’s cutting-edge ISV product suite acquired earlier this year, clearly sets First Data apart from the competition in the high growth integrated payments space”.
The Fintech news of the year, however, was one of marriage: a marriage between D+H and Misys in a $4.8 billion operation led by Vista Equity Partners. The two companies now form Finastra, a new titan of the financial software’s market, a giant which would be the third largest financial services technology company in the world, with over 9,000 customers in 130 countries, including 48 of the top 50 banks globally.
This merger almost eclipsed other noteworthy operations such as the $230 million acquisition by Paypal of TIO Networks, a Canadian internet technology company which operates a bill payment platform. Or the takeover of British bank account-based payment systems firm Vocalink by Mastercard. Through this $750 million purchase, Mastercard secured all of the companies that were under Vocalink’s umbrella. Gems such as BACS which operates the platform governing direct debit/credit payments between bank accounts in the UK. Or Faster Payments Scheme Limited, the guardian angel company making fast and safe all internet, mobile and telephone payments across Britain. But this acquisition also allowed Mastercard to get hold of LINK, the 72,000 unit strong ATM network in the UK. Even in the tech field, M&A are not always driven solely by technological purposes, and sometimes physical assets may provide another key to success.
Amazon, the fifth king of the tech Savannah, offers an intriguing example. In fact, in August the e-commerce giant closed an impressive $12.3 billion deal to buy Whole Foods, the supermarket chain world leader in natural and organic food, with over 91,000 employees and 473 stores. Strangely enough Amazon, the company which pushed out of business hundreds of physical libraries and malls all over the world, now seems to appreciate the importance of brick and mortar shops. Purposefully or not, the move closely resembles that made by a direct Amazon’s rival, Alibaba. In 2016, the Chinese e-commerce colossus had paid $290 million to secure a third of Sanjiang Shopping Club Co., a regional discount supermarket chain. Last November, it offered $2.9 billion to take slightly more than a third (36.16%) of Sun Art Retail, a leading hypermarket operator in China with 446 complexes in 224 cities.
Just like Amazon, Alibaba sees new business opportunities in going offline or at least trying to fuse online and offline retail. Since 2015, it has invested over $9 billion in brick and mortar stores. Why? One reason may be that those stores are an incredible source of data on consumers’ tastes and habits, especially in China, where – as Reuters news agency notes – 85% of sales are made in the offline retail market.
In China there is not only Alibaba. Another tech giant which is worth more than a passing mention is Beijing ByteDance Technology Ltd. Western tech consumers may not know it but this group is becoming huge. Its flagship app is Jinri Toutiao, a news aggregator powered by AI technology with over 120 million daily users. But ByteDance has a worldwide appetite. It already owns TopBuzz, an English/Portuguese language app for the North American and Brazilian market, that uses AI to suggest user-tailored news. Earlier this year, ByteDance bought Flipagram, a video creation app which allows its 200 million users to combine music with personal pictures and videos. Last November, it went further and spent between $800 million and $1 billion to acquire the teen lip-syncing app Musical.Ly with around 60 million users, mainly based in the States. The 2017 of ByteDance doesn’t end here, since it has closed a strategic cooperation deal with Cheetah Mobile, the Chinese internet and mobile app publisher with 600 million active users, mostly from overseas markets. The deal led to the acquisition of News Republic, the app aggregating news from over 1650 media partners. ByteDance/Toutiao is becoming a global actor.
Like Geopolitics, the tech market seems to be a two-horse race: it’s US versus China and there’s no room for other competitors. European tech firms of course exist but quite often they can’t fully blossom and reach a considerable size to be the mouth instead of the mouthful. According to Bloomberg news agency, in 2017 there have been $680 billion of acquisitions targeting European companies. Tech firms are a good slice of this cake.