Corporate M&A Activity Around Startups Is Growing

Corporate M&A Activity Around Startups Is Growing

By Barbara Bryant, social media manager

Yesterday the New York Times reported that corporate giants are now acquiring tech start-ups outside the realm of investment banks.  The trend reflects how new technology is “radically changing” traditional businesses.  While management teams rarely seek businesses they don’t absolutely understand, according to Scott Andelson of Houlihan Lokey Corporate Finance Department, it is clear that separate digital divisions are vital for corporate growth.

LionTree investment bank CEO Aryeh Bourkoff stated, “Technology should be integrated into every division of a company.” Rather than brokering through investment banks, however, companies are obtaining new technology by directly purchasing tech embryos.

Start-ups are a source of innovation for their larger counterparts in the technology industry.  Everyone knows that tech companies from IBM to Hewlett-Packard to Cisco to Yahoo, let alone the Frightful Five giants, initially grew from nascent ideas.  Once the stronghold of large corporations, R&D now churns, pivots, and bursts into form inside tech growth tanks everywhere.
Fortune Magazine reports that corporates are more eager to work with startups. Twenty-three percent of corporates see it as mission critical, and 82% said it’s at least somewhat important.

Not only are start-ups acquired for their new ideas, but also because they can become a major competitor disruptive to the slower-to-change traditional businesses.  Better to consume the smaller fishes than have them grow into predatory sharks.  Take Makerbot as an example. Makerbot disrupted the printing and manufacturing industries, according to Business Insider. Instead of printing on paper, users could print actual things.  At the time, the beginnings of 3D printing weren’t being developed at places like Hewlett-Packard – they were nesting and growing at Bre Pittis’ digs in Brooklyn, NY. 

Exploring deal options is now a purview of large corporations. Tech start-ups are still positioned on the sharp side of new ideas. With a new year comes a new possibility for building a startup. For example, read how startup-up Text Engine’s founder built Artificial Intelligence into its capabilities