6. The most digitally focused industries
We then analysed the data to see which industries are the most active in the digital/tech space – and what assets they’re buying. It is little surprise that technology companies bought the most digital/tech assets, accounting for 46.9 per cent of acquisitions by volume. Next up were financials (11.1 per cent by volume) and industrials (8.2 per cent) followed by telecoms (8.1 per cent) and healthcare (6.9 per cent).
Looking at the data at this level however masks some interesting insights. Weighting the figures to reflect the number of S&P constituents in each industry reveals just how ‘digital’ certain sectors have become. On average, telecoms companies did more digital/tech deals than even their tech counterparts, completing 14.38 acquisitions over the nine-year period in our study. This is in part due to the low number (34) of telecoms constituents in the S&P Global 1200 and also their size. The average market cap of the telcos in the index is $55bn, almost 1.5x that of other industries ($37bn). Included in this group is also SoftBank Corp, owner of one of Japan’s biggest mobile networks, as well as US operator Sprint. SoftBank made 24 digital/tech acquisitions between 2009 and 2017, including its $31.8bn buyout of chipmaker ARM Holdings and $2bn deal for eAccess.
The level of activity in media and entertainment is equally startling, with the biggest businesses in the sector buying an average of 8.74 digital/tech assets between 2009 and 2017. Here, the most significant completed deals included Charter Communications’ $67.1bn merger with Time Warner Cable and Bright House Networks, which created the second-largest broadband provider in the US and the third-largest pay-TV company.
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Which sectors do the biggest deals?
When looking at digital/tech spend per company, tech businesses were way out in front, investing $3.3bn on average per constituent. Next up were telcos ($2.9bn), followed by healthcare ($1.8bn) and media companies ($1.2bn). SoftBank’s presence again boosts the numbers for the telecoms industry as a whole – without it, telcos’ average investment drops to $1.8bn per deal.
Analysing investments by each industry into the asset classes outlined in Part 5 reveals that tech companies spent more on cognitive technologies and AI ($110bn) than any other type of tech. Here, the biggest deal in our study was Intel’s $16.7bn acquisition of Altera, the maker of chipsets integral to technologies such as autonomous vehicles and machine learning neural networks. The level of investment by energy and power companies into digital industrial solutions assets ($6.4bn, 73 per cent of their total digital spend) also stands out. The prime example of this in our analysis was France’s Schneider Electric buying UK engineering group Invensys for $5bn, a deal driven by Schneider’s desire to improve its position in the industrial automation market.
Numbers reveal digital convergence
What really jumps out in the numbers however is the degree of competition for digital/tech assets between industries. A lot has been written about non-tech companies investing into tech, but our study shows the degree to which tech companies are themselves targeting other sectors for their digital crown jewels in order to build new service offerings and disrupt traditional industries.
Tech businesses bought more digital assets in the consumer space than consumer companies themselves, a phenomenon illustrated by Salesforce.com’s $2.8bn acquisition of Demandware, whose cloud-based e-commerce platform and related services support retailers and brand manufacturers around the world.
Financial institutions face similar competition for digital assets in their own industry – only in their case from industrials and telecoms companies as well as the leading players in the tech sector. Interesting deals here include Volkswagen Financial Services acquiring the mobile payments business of PayPoint, and Telefonica snapping up Boku, which provides online payment and transaction processing services for digital and virtual goods bought via mobile phones.
This level of competition has consequences. It has long been the case that strategic investors are at an advantage in their own sector as the synergy benefits they can drive from deals enable them to pay more. But in the digital world, non-tech companies may find they need to be more creative if they want to land the best assets.
If a financial institution or an industrial business is facing off against a dynamic tech company in an auction, it will have to think hard about its value proposition to the seller. Tech buyers may be able to offer a faster growth trajectory due to their technical expertise, or more attractive compensation packages due to the profile of their stock. As all industries scramble for digital/tech assets to drive their transformation, adapting deal strategies to reflect the dynamics of this new world can be the difference between success and failure.