Next Tech Boom Looming?

The pursuit of digital convergence, and the resulting urge-to-merge, will likely deliver the next boom in the technology industry according to a report from PricewaterhouseCoopers. The report concludes that executives have learned from the last bubble and are approaching the current round of mergers and acquisitions (M&A) more strategically.

Andy Morgan, partner and UK technology leader, PricewaterhouseCoopers said that CEOs have not forgotten the lessons of the dot-com crash, but there are key differences between then and now.

"The early tech boom was built on promised results that, in many cases, never materialized. What we are seeing now is that the current spate of development is built on concrete products and commercially viable offerings.

"The success of this second tech boom is dependent upon strategic partnerships that fulfil emerging consumer needs.

"Companies are under pressure to gain footholds in digitally-related industries and markets but executives see M&A as a means of capturing entire beachheads. To be a player in today's integrated technology landscape, they must quickly take advantage of others' core competencies."

Digital convergence brings together computer, phone, recording and broadcast technologies within an all-digital environment that enables new, flexible uses of products and services. The pursuit of digital convergence is leading to increased corporate consolidation, with no sign of let-up. Approximately 64% of the 149 technology executives surveyed for PricewaterhouseCoopers report expect the consolidation trend to continue over the next three years.

CEOs surveyed by PricewaterhouseCoopers fully expect a few flops and are treading more warily as a result. Forty-one percent of respondents anticipate major corporate failures, perhaps stemming from companies that reach too far beyond their strongest skills.

Andy Morgan, partner and UK technology leader, PricewaterhouseCoopers added "CEOs, while excited about the possibilities of digital convergence, are carefully looking out for the long-term financial viability of their companies while looking to deliver enhanced products, gain new customers and increase market share without taking on unnecessary risk and devaluation.

"Due diligence and a vigilant analysis of what each party brings to the table will help executives determine if they should pursue M&A, or if an alliance or partnership will meet their needs. We expect to see drastic increases in all of these areas over the next few years, without repeating the same mistakes of the last tech boom."

Survey participants listed software developers as the most likely target for acquisition (49%), followed by business information content developers (40%), wireless companies (19%), entertainment content developers (18%) and consumer electronic device makers (15%).

Respondents also noted that alliances and partnerships are viable and sometimes preferable alternatives to M&A. Almost half of CEOs surveyed (46%) felt that digital convergence revenue was most likely to be generated from these types of collaborations. Only 28% of CEOs placed M&A at the top of that category, and 52 % actually prefer alliances to M&A. Partnerships often offer less permanent financial risk to a corporation, although alliances may also move too slowly to capitalize on a fast-moving opportunity.

The winners in digital convergence take a cautious but quick approach to M&A. Careful consideration and strategising is a necessity - decision-makers must consider a deal from many angles. These points of examination include the culture of the possible acquisition, likelihood of retaining key staff members, cost balance effects and how the market would value the deal. Companies that then integrate quickly report more favourable productivity and profits.

You can download the report from http://www.ukmediacentre.pwc.com/imagelibrary/downloadMedia.asp?MediaDetailsID=731"

Posted to the site on 31st May 2006