Raining on the M&A parade

by Brenon Daly

Not everyone is loving the record pace of tech M&A this year. In a novel survey, 451 Research’s Voice of the Enterprise (VotE) recently asked more than 1,000 IT users for their take on the seemingly ceaseless stream of acquisitions that has unalterably reshaped the tech landscape. Their verdict: they are hesitant about doing business with those companies after the deal closes.

Specifically, four out of 10 respondents to our VotE: Digital Pulse, Vendor Evaluations survey said they had concerns that one of their key vendors would get snapped up within the next year. That’s a legitimate concern when we consider that this year, we’ve already seen over 100 major tech vendors acquired for more than $1bn, according to 451 Research’s M&A KnowledgeBase. Further, survey respondents told us that most transactions break down because of product, not pricing.

Disruptions and distractions caused by the acquisition were – by far – the main reason for the dour assessment given to deals. Roughly one-third of respondents who had concerns about M&A cited those two reasons, which was twice as high as any of the other concerns. In contrast, just one out of 10 (11%) cited ‘price increase’ as a reason for the concern. (Note to all the would-be trust-busters in Washington DC: you can relax your scrutiny of tech transactions just a little bit.)

The VotE survey is important because it draws responses from IT users, or as we like to call them, ‘customers.’ In many cases, the VotE respondents are the very people who have supplied the growth that made the acquired company attractive to the buyer in the first place.

Further, it is these customers – not the acquirer or its phalanx of paid supporters of the deal – that will ultimately determine the returns on the thousands of tech transactions done each year. (Our VotE survey captures their ‘vote’ on M&A, if you will.) And yet, a significant number of them are saying that, post-close, it may not be business as usual with their suppliers. That’s a decision that could potentially swing hundreds of millions of dollars in IT spending to different vendors.

Of course, a skeptical take doesn’t necessarily doom a deal. But the bearish outlook from customers does stack the odds a bit higher against buyers getting the hoped-for returns from the acquisitions they are inking. The sentiment in our survey stops short of saying ‘buyer beware’ – instead, it’s more ‘buyer be aware.’

Posted in M&A