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Buying vulnerable targets not right way to gain software skills

A report into the software market from Plimsoll has warned that tried and tested acquisition strategies will have to change

The traditional approach of choosing to swoop on an acquisition target when they are vulnerale is not going to arm those ambitious firms with the right software skills.

The sort of 'high class' targets that are going to provide value to a business and provide growth are not the sorts of players that are going to be desperately seeking buyers before calling in administrators.

There is a warning from Plimsoll in its latest Software Development report that acquisition strategies need to change.

The firm has put together a report that identifies more than 260 potential tragets with the vast majority profitable and operating in an area of the market that is experiencing growth.

“It is a long-standing debate, when considering an acquisition, do you buy cheap or high value? In reality, most people’s idea of an acquisition is to wait until the business has declined so far meaning the only option is for a new owner to come in and save the business – essentially spending peanuts," said David Pattison, senior analyst at Plimsoll.

"However, we feel this approach needs to change. The acquisition strategy should be based on the direction of the current market. By acquiring a successful business, it gives both the company and the new owners a chance to add new investment and further cement their position in the market, whilst the current owners may feel they have taken the business as far as they can," he added.

Software in general is experiencing decent growth with Gartner forecasting that along with services the sector will be driving the $3.5trn of IT spending this year.

This year has already seen plenty of M&A activity in the channel as established players take steps to ensure they have the right levels of cloud and services skills required to support customer digital transformation strategies.

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