Mergers and Acquisitions in the software industry: Goals and specifics
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 acquisitionsNow 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.
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 industryAnother speciality are business models in the software industry, which are typically hybrid business models. Find more information on the software business models website.
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(C) Dr. Karl Popp 2014