Largest Tech Acquisitions: Understanding When & Why Tech Acquisitions Happen
Understanding the largest technology acquisition and merger deals, what worked and what didn’t, can help to inform a successful tech acquisition strategy.
What is a technology acquisition?
A tech acquisition is when a company acquires (does a deal to buy) a smaller technology company to gain access to technology it owns or has developed to incorporate this tech into its range of products and services to increase market opportunities and amplify its capabilities.
A tech acquisition allows the acquiring company to benefit from new technology without undertaking research and development. Both parties may consent to a ‘friendly takeover’ and negotiate the acquisition terms. In a ‘hostile takeover’, the acquiring company buys an entire company or majority shareholding in that company without consent.
Tech-based mergers and acquisitions may occur between established companies or in emerging markets and products.
Tech acquisitions' role in industry growth
Tech acquisitions have a central role in growth in the technology industry. A merger or acquisition may benefit both parties, offering an exit strategy for startup founders or an opportunity for both companies to expand into new markets.
Tech acquisitions contribute to industry growth by:
Creating synergy
For example, software and hardware technologies combine to create a new product or service. Combined companies share resources, including intellectual property (IP), knowledge, and processes and can find cost efficiencies that benefit the outcomes.
Improving time to market
Resources from each tech company are combined to accelerate research, development and release of a timely and relevant product.
An acquisition of a tech start-up or smaller company may benefit the smaller company by bringing innovative technology to market faster, perhaps in industries or applications where a smaller company does not have market entry.
Bringing innovation into new industries
New technologies are required to solve emerging and modern problems in industries like defence, security and health. Large companies may not pivot quickly from established solutions to find timely answers to new challenges in rapidly evolving markets.
Emerging requirements are an opportunity for mid-size and smaller hardware or software companies with capital to acquire the knowledge and technology to provide timely solutions ahead of larger businesses.
Five of the largest tech acquisitions in history
Activision Blizzard x Microsoft
Microsoft announced the intention to acquire Activation Blizzard for $68.7 billion, a price of almost $95 per share, on January 18, 2022. The deadline for finalisation of the deal has been pushed to 18 October 2023, pending a decision from the UK regulator. This will complete a 20-month process of regulatory approvals in Europe and the United States.
If successful this will be the largest acquisition in the gaming industry. The acquisition brings together Microsoft gaming console tech Xbox with gaming titles including “Call of Duty” and “World of Warcraft”.
EMC x Dell
Hardware company Dell acquired software company EMC for $74 billion, at $24.05 per share, in September 2016, rebranding to Dell Technologies and adding software to the Dell portfolio.
In an interview with John Powers published by Deloitte CFO Journal, CFO Howard Elias observes that establishing a single source of truth using a combined finance team with a unified way to measure and report business contributed to the success of the merger.
In August 2023 Dell Technologies held third position in the global PC market after Lenovo and Hewlett-Packard.
Twitter x Musk
Elon Musk closed the deal to acquire Twitter for $44 billion on 28 October 2022, a price of $54.20 per share. Discussions began in January 2022 with a deal reached in April 2022.
Musk was transparent and vocal throughout the deal, “tweeting” updates throughout, causing stock market prices to fluctuate in response to the deal's progress.
Now privately owned by Elon Musk, Reuters reports that X (formerly known as Twitter) was worth around 8 billion in October 2023, a fraction of Musk’s purchase price.
Broadcom x Avago Technologies
A tech company serving the wireless and industrial markets, Avago Technologies, acquired Broadcom, known for making connectivity chips widely used in smartphones made by Apple Inc and Samsung, on 1 February 2016 for $17 billion cash and around $20 billion in stock.
The deal resulted in Broadcom shareholders owning approximately 32% of the combined company. Discussions first began in October 2014, with the tech acquisition deal agreed on 28 May 2015 and heralded as a landmark transaction in consolidating the semiconductor industry. Avago Technologies has a track record of successful acquisitions, including storage chip maker LSI Corp.
The deal was funded by Avago Technologies (who took on the Broadcom name) using cash on hand from the combined companies and $9 billion of new, fully committed debt financing from a consortium of banks.
The CEO and President of Broadcom would continue on and directors from Broadcom joined the board of the new combined company. The company was valued at $354 billion USD in October 2023 with shares at $858.41.
Xilinx x Advanced Micro Devices (AMD)
In an all-stock transaction worth $35 billion, AMD acquired adaptable computing company Xilinx, expanding its market and adding Xilinx Field Programmable Gate Array (FPGA) technology to its CPU (central processing unit) and GPU (graphics processing unit) tech.
Former CEO of Xilinx, Victor Peng is now the President of the Adaptive and Embedded Computing Group at AMD, reporting to AMD CEO Dr Lisa Su. This is an acquisition with the goal of synergy, combining complementary products, customers and markets, talent and IP.
What motivates a tech acquisition?
Mergers and acquisitions in the tech industry are often motivated by a market opportunity to grow, develop or enhance technologies, combine technologies and expertise to create new products or meet an emerging market demand.
As technology becomes more sophisticated, companies may not have the resources to develop new solutions independently. Acquiring a company with the knowledge and product or solution that solves the market demand solves the need to develop a solution.
A tech acquisition requires capital investment upfront, unlike a merger, which may not involve an exchange of cash. The acquiring company must have funding from investors, revenue or venture capital to fund the acquisition. This means that an acquisition must have a clear goal or goals to justify the cost.
Eliminating competition
Consolidating knowledge and resources from smaller companies into a larger company can result in lower costs and greater innovation. By combining into one company, the focus shifts from competing for market share to capturing greater market share together.
Enhancing reputation
When two companies with substantial market share and complementary skills, resources and goals combine, it can enhance the reputation of the combined company. This may be reflected in an increase in share price following the announcement or acquisition, as seen with the acquisition of Xilinx by AMD.
Advancing technology faster
An acquisition can bring together talent and resources that can enable innovation to accelerate in a way that would not be possible had the teams remained siloed.
An example of this is Anduril, a company with software called ‘Lattice’ which can integrate with a range of defence hardware systems. Anduril has focussed on acquiring five companies with defence hardware capabilities, adding its software system to bring the hardware to market years sooner.
Risks and challenges of tech acquisitions
Acquisitions come with substantial risks and challenges. Acquisitions may fail for reasons including legal barriers, cultural differences, integration roadblocks or funding constraints.
Understanding and mitigating the risks of a particular acquisition is a key to success.
Harnessing the benefits and mitigating risks in tech acquisitions
A successful acquisition has many benefits, potentially for both companies. The combined company may have a stronger bargaining position within its market than either company did alone, or gain entry to new markets. There is also the opportunity for cost savings in combining business operations.
Conducting thorough due diligence using a secure process that allows information sharing between companies before the deal is live can mitigate the risks of a tech acquisition.
Risks to security and confidentiality throughout the acquisition negotiation process can be mitigated using ISO-compliant virtual data rooms that allow granular access privileges to information.
The first 100 days following an acquisition are key for integrating the two companies and ensuring that teams are on track to work effectively together. From the beginning of the due diligence process, everyone involved should have the desired outcomes in mind, with a focus on harnessing the benefits of an acquisition.
Another risk of acquiring a tech company is the financial risk (for example, Musk’s Twitter acquisition). Broadcom president Hock Tan’s strategy mitigated financial risk during his successful acquisitions. Following each acquisition, Broadcom Inc (previously Avago Technologies) paid down debt taken on to fund the deal using the cash flow of its businesses, enabling further acquisitions.
The future of tech acquisitions
Tech acquisition strategies will need to be reimagined in the context of the economic and geopolitical uncertainties in 2024-25. Companies are likely to shift focus to develop a depth and specialisation of the services or products offered, with a focus on solving challenges in healthcare and life sciences, defence and banking.
While cautious optimism continues, we anticipate continued momentum in the technology sector that will foster competitive technological innovation.