Mergers and Acquisitions in the software industry: Goals and specifics

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Here, we are looking at goals of software vendors in mergers and acquisitions and at specifics of the software industry in M&A.

Sources of innovation

Besides sources of internal innovation, e.g. by building new software products, software vendors are also looking into acquisition as a source of external innovation. Interestingly enough, acquisition leads to acquired products but also to process innovations for the resulting combined company. Here is a slide that shows how products are supplied by an acquisition target to an acquiring software vendor.
The acquisition target provides its products either via an asset deal or a share deal.
The software vendor pays a purchase price in the form of e.g. cash, shares or other compensation.

Goals for mergers and acquisitions

Now let us look at examples of goals that are driving the acquisition of software companies. Often we find a growth strategy of a company as one of the main reasons driving an acquisition. Besides that, an acquisition provides the chance to achieve a number of different goals, of which important examples are listed in the following figure.

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What makes the software industry special?

The following table shows the distinctiveness of the software industry regarding due diligence in contrast to other industries:

Type of Due Diligence

Distinctiveness of the software industry

Strategic due diligence

High volatility in time, high impact of platform strategies and partner ecosystems on success

Market due diligence

High market size volatility in time

High frequency and speed of disruptions in markets

Commercial due diligence

High change rate and diversity of business models, revenue models and their combinations

Technological due diligence

Distinctiveness and high change rate of software platforms and other technology

Human resources due diligence

High importance of workforce quality due to low automation in production

Cultural due diligence

Software industry raises high employee expectations in culture

Intellectual property due diligence

Increased importance due to strong role of IP

Financial and tax due diligence

Diversity of business, revenue and delivery models raise challenges


Business models in the software industry

Another speciality are business models in the software industry, which are typically hybrid business models. Find more information on the software business models website.

Get more information in the new book!


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(C) Dr. Karl Popp 2014

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