Businesses grow tech expertise through software M&As

Businesses are increasingly acquiring software companies to bolster software development expertise a new report finds

Businesses are increasingly acquiring software companies to bolster software development expertise, a new report from Vanson Bourne has found.

In the global survey of 1,450 senior business executives, which was sponsored by CA Technologies, 52% of those asked said they were acquiring software companies to obtain critical skills or plan to make a software company acquisition in the next year.

In the survey, 19% said they had no plans acquire a software company.

The report said bringing more software development back in-house is a recognition that these skills need to be a core part of enterprises’ DNA, but sometimes the pressure to an application footprint means you can’t grow skills fast enough.

When this becomes an issue, enterprises are turning to software acquisitions as a way to get the talent and technology they need.

CA Europe CTO, Bjarne Rassmussen, said: "Companies are growing their IT at a fast rate. They are insourcing key competencies One way to get expertise quickly is by acquiring software companies."

Rassmussen expected that software companies with expertise in API integration would be among the top acquisition targets for businesses that need to bolster their application development skills.

Several major companies are running innovation programmes with startups to develop new product ideas. Earlier this month, Diageo launched a global innovation programme to develop applications that support its responsible drinking campaign.

Earlier this year, department store John Lewis launched JLab, a startup incubator programme. At the time, John Lewis IT director, Paul Coby, said he hoped the startups would be able to help the retailer understand home automation technology, which is currently making waves in security, music and energy efficiency.

In the McKinsey report, Taking a longer-term look at M&A value creation, Werner Rehm, Robert Uhlaner, and Andy West wrote about how technology companies like Microsoft were very successful at tactical M&As. 

“Companies using a tactical approach to M&A also do numerous small deals, but those deals do not, combined, make up a large portion of the acquirer’s market capitalisation,” the authors said.

As an example, they said Microsoft has acquired many smaller products that are then developed into future releases of Excel.

Acquisitions from some tech giants, such as Google, are putting them in direct completion with traditional businesses. In January Google acquired smart thermostat maker Nest Labs in a $3.2bn deal, which puts the search company in the energy market. Non-IT companies will increasingly find that they are facing new competition from the likes of Google as the tech giants extend their reach into new markets.

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