Tech M&A is skyrocketing, fueling vendor consolidation fears

Dive Brief:

The first five months of 2021 saw $145.8 billion worth of technology deals, including nine megadeals through May 2021 totalling $99.7 billion, according to PwC's midyear outlook on technology deals.
While the value of tech M&A deals has increased, the volume of deals is decreasing. Between the first half of 2020 and the second half of 2021, deal volume decreased 12.7%, according to the report. On average, each deal cost $186.8 million.
For CIOs, the trend to pay attention to are the emerging vendors coming into the market with products that can shape business performance, according to Marc Suidan, deals principal at PwC. "How do you make sure you're ... really delivering on the value you need for the business and supercharging the growth?" Suidan said.

Dive Insight:

The technology mergers and acquisitions market will keep growing, leaving CIOs and other tech executives to grapple with a changing vendor landscape. The total number of tech deals is set to exceed its 2018 peak by 2022, according to Gartner data.

Vendor acquisitions happen because one company sees value added in owning another for financial reasons or to expand product offerings and integrations. For CIOs, this could mean the landscape of tools used by the business becomes easier to manage — or it could reduce the number of available vendors with niche value-adds and hurt the ability to negotiate price.

"The vendor should be able to provide assurance they will continue serving their customer in the event of an acquisition, and the customer should see this assurance written in their contract," Barry Glauberman, senior research director at Gartner, said in a statement to CIO Dive. "If it’s not there, then ask for it to be added."

The Salesforce-Slack deal, for example, shook the market in late 2020 with its $27.7 billion price tag. It signaled a move on Salesforce's behalf to tie collaboration and business communications into CRM functions, broadening its footprint in the enterprise.

More recently, big ticket deals have continued into 2021. ServiceNow bought RPA company Intellibot on the same day UiPath purchased Cloud Elements in March. Microsoft acquired Nuance for $19.7 billion in April, signaling an enterprise shift toward speech-to-text technology. Dell sold cloud software unit Boomi to a private equity firm for $4 billion in May.

Much of the funding and movement in the deal market fuels new advances in data, automation and other disruptive technologies, according to Suidan. It's important to make use of the emerging vendors, "because if you're not, then chances are it's going to be harder to support your business with a growth agenda," Suidan said.

Fears of too much vendor consolidation aren't unfounded. The rise of megavendors in the cloud and SaaS space last year hallmarked the enterprise shift toward the need for remote collaboration last year.

"Tech leaders should take a 'next vendor up' approach, whereby they always have another vendor that can quickly be called upon to back-fill if they need to make a change due to an acquisition, or for any other reason," Glauberman said.