IoT and Industrie 4.0 creating M&A hotspots

According to a report from Hampleton Partners, he Internet of Things (IoT) or Industrie 4.0 technologies are driving a new wave of mergers and acquisitions in the technology sector.
By Chris Middleton, Vinelake March 28, 2018

Courtesy: Olu Eletu/UnsplashThe Internet of Things (IoT) and Industrie 4.0 technologies are driving a new wave of mergers and acquisitions in the technology sector according to a report from Hampleton Partners, an M&A consultancy. Technologies such as sensors, blockchain, artificial intelligence (AI), machine learning, and big data analytics are the key hotspots across a range of industry verticals, including automotive, healthtech, and high-tech industrial applications.

Traditional companies are under pressure to quickly and effectively integrate these technologies into their product and service offerings. Hampleton Partners’ 2020 Tech Outlook report says the alternative is being rendered obsolete by new market entrants that are causing "profound shifts in value chains and customer behaviors."

These transformative trends in the market are resulting in rising strategic deal valuations for disruptive, young, and scalable tech companies, says the report, with increasing activity from private equity sources compared to strategic investors.

Miro Parizek, founder and principal partner, Hampleton Partners, said: "The technological and resulting behavioural and social change is forcing established companies in industries such as financial services, automotive, healthcare, and high-tech industrials to acquire and integrate companies at the leading-edge of artificial intelligence, blockchain, cybersecurity, and other technologies. This is to ensure they can stay relevant and launch new products and services into the marketplace quickly. The alternative is simply to be left behind."

Pressure gauge

M&A activity is seen by many analysts as a gauge of underlying tech trends, as both vendor and customer firms jostle to acquire startups, competitors, and strategic partners to consolidate their positions.

Overall M&A activity is down at present—transaction volume and total disclosed value have moved from $4.043 and $506 billion in 2016 to 3.441 and $325 billion in 2017—but Industrie 4.0 applications are buoyant, the report said.

This points to a promising future. "As long as interest rates remain low and cash continues to pile up at both strategic and financial investors, we expect 2018 to see a rebound in M&A activity, rather than continuing a downward cyclical trend," Parizek said.

"The space will continue to see a high degree of consolidation in several industries, while new, upcoming technologies such as blockchain, AI/machine learning, autonomous/connected vehicles, big data, IoT, and cloud will bring fresh tech to the market."

Industry hotspots

Hampleton sees particular opportunities in automotive tech, including automotive vertical software, embedded software, and systems for vehicle autonomy and connectivity.

Fintech is another potential hotspot. "We expect waves of digital disruption driven by investment in chatbots, machine learning, and artificial intelligence, as well as in blockchain technology, gaining momentum with growing interest from large banks and private equity bidders," said Mike Woods, senior principal at Hampleton Partners.

Information technology (IT) services, including outsourcing and software development, are another healthy area of M&A activity, says the company. "Development-intensive areas such as AI, cybersecurity, and automotive will continue to generate sustained growth in this area in the future," said Axel Brill, director of Hampleton Partners.

Also on the firm’s radar are: healthtech, including healthcare vertical software, online health services, EHR, and medical hardware; and high-tech industrials, including in automotive, building and construction, clean tech, medical technology, and robotics and machinery.

"Industrie 4.0—now closer to a fact of life for manufacturers than a dream—is driving M&A in the high-tech industrials sectors, especially in the German-speaking world where the DACH countries (Germany, Austria, and Switzerland) can flex their traditional strength in high-quality engineering and innovative high-tech products," said Dr. Peter Baumgartner, sector principal at Hampleton Partners.

Sensors and sensibility

At the heart of M&A activity in high-tech industrial applications are sensors, says the report: "IoT or Industrie 4.0 is always predicated on devices being able to communicate in real-time as a response to real-world stimuli. Sensors constitute the key enabling technology as they capture and convey petabytes of information that inform automated processes and systems. With increased private equity tractions and deals from large original equipment manufacturers (OEMs)… to smaller providers, sensors are taking on more prominent roles as they become smaller, resistant to harsher environments, cheaper, and integrated into ever more equipment."

Chris Middleton is the editor of Internet of Business (IoB), a CFE Media content partner. This article originally appeared here. Edited by Chris Vavra, production editor, CFE Media, cvavra@cfemedia.com.

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