M&A: Why is IT such a hotbed of activity?
Mergers and acquisitions have long played a major role in corporate strategy across all industries, for good and for ill. However, it seems that M&A plays a more active and integral role in IT than most other industries.
So, what is it about IT that creates such hyperactivity in M&A? Here are but a few of the factors we think are unique to the industry and that seem to make M&A an enticing growth strategy:
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Size and growth: The sheer size and scope of the industry, which Gartner predicts will reach $3.3 trillion in revenues in 2008 (+5.5% vs. 2007), make it a large tent offering big opportunity and big rewards for aggressive companies.
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Youth: Relative to other mature industries, IT is still a youngster. Consider that Microsoft is 33 years old, SAP is 36, Oracle is 31, Cisco is 24, Sun is 26 and Business Objects is 18. Then, of course, there is Yahoo! at 14 and Google at 10, and a whole slew of IT babies; MySpace.com is five years old, Facebook is four, and YouTube, still an infant, is only three years old. There’s energy and vitality in the industry that’s constantly infused with an infectious, entrepreneurial drive. It continues to be a make-it-happen environment.
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Innovation: It’s the industry’s raison d'être, the fuel that drives growth and opportunity, and it’s the one characteristic that separates this industry from all others. No moss grows on this rolling stone, as every day sees the introduction of revolutionary new ideas, technologies, products and services, with no end in sight.
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Fragmentation: Beyond the fewer and fewer big-name brands at the top of the pecking order, the IT industry—notably services—is a truly fragmented category with hundreds of thousands of competitors. This breeds a healthy rivalry as companies look for new ways to grow and differentiate themselves.
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Global reach: The market is the world. There are no boundaries. New companies, ideas and customers are to be found in every nook and cranny of the developed and developing economies, and they can be serviced from almost anywhere.
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Entrepreneurial Lifecycle: Most startups and young IT service companies come from technology entrepreneurs—smart, restless, ambitious tech gurus who enjoy the thrill of creating new enterprises. Many of these companies grow to the point at which new skill sets are required to take the company to the next level. For many entrepreneurs, this is an opportunity to pass the company on to those with such skills, and then, for them, it’s back to the drawing board to start anew. IT, alone among industries, thrives on this evolutionary business model cycle.
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