The game continues: Acquisitions and expansions in the digital world

In the face of big-ticket mergers and acquisitions, such as that of WhatsApp by Facebook, what lies ahead for startups and tech firms?

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It is the dream of many technology startups for their software to be sold to cash-rich companies or to go public at a huge premium for the founders. The latter is often a difficult path, as few technology companies generate sufficient stable revenue or are sufficiently well-known to consumers to warrant encouraging responses to a public offering. This is particularly true for those which operate back-end technology that consumers may not be aware of.

Technology startups should take heart that despite concerns swirling about a “tech bubble” on the horizon, there is no slacking of appetite in the IT industry to acquire fast-growing technology startups. The rivalries among the technology industry’s giants have often been likened to a “Game of Thrones”, in which companies such as Facebook, Google, Amazon and Apple try to expand their business by encroaching on one another’s empires.

The IT industry has acknowledged that consumers are the driving force behind innovation and developments in the technology industry. In the name of consumerisation, many technology giants are willing to fork out jaw-dropping sums to increase their user base. Competition among the biggest technology companies in the world has been keen, as they all try to increase their business margins and 2013 saw a spate of acquisitions which resulted in the technology sector having its highest value in M&A activities in 6 years at US$166.2 billion.

Each company has developed its own strategy and business model.

In the US, 2013 was a busy year for Google, which acquired nearly 20 companies. Google appears to be looking at alternative revenue streams, departing from its habit of acquiring only technology companies, with a shift towards hardware. Google’s interest in the robotics and artificial intelligence sectors does not appear to have waned as it recently announced that it had bought Nest Labs (a home automation company) for US$3.2 billion, DeepMind (an artificial intelligence company) for more than US$400 million and Impermium and SlickLogin, both companies specializing in internet security.

Also Read: The Internet of Things becomes the Quantified Self

Facebook has set the industry atwitter (pun intended) with its announcement on 19 February 2014 that it would be snapping up Whatsapp, a mobile instant messenger for US$19 billion. The social networking company has been anxious to increase its monetization of its user base since its IPO and had a busy year in 2013, implementing inorganic growth to build out its mobile offering buying mobile software and analytics businesses. Amazon has focused on its core business as an online retailer, by adding complimentary services to its portfolio, whilst Apple had acknowledged that it is making acquisitions to access talent as well as complimentary intellectual property that it wants to integrate into its hardware or software.

On the Asian front, various technology companies are also gearing up to give their Western counterparts a run for their money. Samsung has made no secret that it is intending to diversify from consumer electronics. In the past few years, Samsung has expanded its portfolio with acquisitions of companies involved in medical equipment, LCD displays, software storage and cloud based music service. Rakuten, the Japanese e-commerce and Internet company, has also been active in growing its business by investing in Pinterest, purchasing e-book and VOD service businesses, as well as more recently acquiring Viber, a cross-platform instant messaging voice-over-Internet Protocol application, for $900 million.

Many market watchers have also focused their attention on Chinese technology companies, which are growing with remarkable speed. Tencent’s businesses which include popular social messaging platform WeChat, saw its market valuation rise to $101 billion in September 2013 and is one of the largest Internet companies in the world. In January 2014, it was announced that Baidu, China’s top search engine, has a market capitalization of roughly $55 billion – no mean feat for a company less than 15 years old. The Financial Times recently reported that Alibaba, the China-based e-commerce firm has undertaken deals worth more than $2 billion, expanding its portfolio to include map makers, social media sites, web browsers and logistics firms. The company is poised for an IPO this year, which analysts say could value it at more than $100 billion.

Also Read: Catching the WeChat train to draw Chinese consumers to SEA

Technology startups, whose businesses have synergy with the biggest technology players in the world, are waking up to the figures they are able to command, as the internet giants fight for greater market share. This is likely to be a long game and the M&A activity in the technology sector looks likely to continue throughout 2014, as the biggest names in technology industry are aware of what is at stake in a winner-takes-all market.

The views are of the author, and e27 may not necessarily subscribe to them.

e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested to share your point of view, please send us an email to writers[at]e27[dot]co

Andrew Stott

Andrew Stott is a partner with Olswang in Singapore, and had helped establish the law firm's Asia corporate group in January 2012. He advises companies, financial institutions and individuals on international public and private mergers & acquisitions, investment deals and strategic joint ventures.

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