Technology companies often grow through acquisitions, buying other companies to integrate into their operations. Emerging technologies can prompt companies to expand beyond their core business, and industry leaders are more likely to use cash for acquisitions. During a robust economic period, M&A activity among technology companies may increase, and cross-border transactions can give companies a global presence.
The tech industry is full of companies that have the potential to be cash rich. Subsequently, many choose to grow their business through technology acquisitions. This is the practice of buying another technology company and integrating the business into the buyer’s operations. As technology advances so frequently and old technologies become obsolete without much notice, companies are almost constantly looking for ways to grow or stay competitive, and M&A activity is a major component of that growth.
The advent of an emerging technology can prompt a company to expand beyond its core business in an effort to capitalize on trends. New developments could certainly inspire a company to grow through technology acquisitions rather than investing in organic growth, which is a form of internal expansion. When a larger technology company recognizes an industry development elsewhere that could ultimately become a competitive threat, it may attempt to make an acquisition to profit from that emerging technology. The cost and time required to develop a new technology in-house may be too much compared to growth through acquisition.
Industry-leading technology companies often have the most cash available and are more likely to make technology acquisitions using all of the cash. This saves the company from going to banks for help financing a deal. When a company is in the market for an acquisition, it can announce these intentions to the public in a financial statement or press release. The company may be interested in expanding its current line of business and looking for companies with synergies of their own or it may prefer to branch out into a completely different technology.
There are plenty of other companies looking for growth tech acquisitions even if money has to be borrowed to make the deal happen. When economic conditions are sound, financial institutions look more favorably at extending loans to companies for technology acquisitions. During a robust economic period, M&A activity among technology companies may be on the rise, driven by available funding opportunities. When borrowing costs are low due to a low interest rate environment, money is said to be cheap and companies are even more likely to seek financing to pursue technology acquisitions.
Cross-border transactions are a type of transaction that can occur in any industry, including technology. A technology company may want to expand into a new line of business in order to better compete with industry leaders. Sometimes, these opportunities are not in a company’s backyard and as a result, international prospects are identified. International technology acquisitions require additional approvals from each country’s regulatory agencies but, once approved, give a technology company a global presence.
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