Tech M&A Outlook: Internet of Things is the Thing
The Internet of Things (IoT) is experiencing surging interest from established tech firms eager to ‘keep up with the Joneses’ as IoT gains market traction in the early phases.
Analysts at 451 Research report that acquirers stepped up their activity in IoT marketplace in 2014, spending approximately $14.3 billion to acquire 60 companies in 2014. That spending is almost eight times the total spent by acquirers prior to 2014 and represents a fortyfold increase over 2013.
The number of deals better than doubled, as companies such as Google, Samsung, Cisco, Intel, PTC, Qualcomm and many others staked out their ground in an effort to position IoT as a key contributor to corporate strategy.
The sharp rise in deal-making activity in 2014 suggests that market forces surrounding IoT have become sufficiently compelling to demand action. Acquirers don’t want to cede anything to a growing list of competitors as demand for IoT services in both consumer and industrial markets build, according to 451 Research.
Enterprise spending is expected to grow across many building-block categories from embedded computing systems to communication infrastructure, IP networking, cloud and datacenter technologies that will form the foundation of the next generation of connected machines and services.
More activity is expected this year as the cost and risk hurdles to IoT adoption are overcome and the competition to serve these markets increases. 451 Research argues that any firm with the strategic intention of being an IT infrastructure and services leader over the next 10 years does not have the option to ignore this market.
M&A activity in 2014 is almost evenly split between IoT-enabling horizontal infrastructure and vertical applications.
In the infrastructure arena, acquirers notched 20 deals, primarily targeting a broad range of sensors, semiconductors, software platforms, security infrastructure and connectivity technologies needed for IoT to work effectively.
Within the verticals, the transport and logistics segment led the field with 11 transactions, followed by the fitness and healthcare segment with 10 transactions. Acquirers also purchased five companies related to the home automation segment, including Google’s $3.2 billion acquisition of Nest Labs last January.