Why Tech Giants Are Playing Acquisition Sharks in 2016
Tech sector expects to see maximum M&As in 2016
When we look at Oracle’s (ORCL), IBM’s (IBM), and Microsoft’s (MSFT) recent acquisitions, it seems clear that these companies are on acquisition sprees in 2016, particularly in an effort to broaden their positions in the public cloud and related areas.
According to KPMG Survey and as the below chart shows, Technology is expected to be the busiest sector for consolidation or M&A (mergers and acquisitions) in 2016. This is followed by the pharmaceuticals and biotechnology sector and the healthcare sector. The graph below shows the expectation of finance executives and M&A professionals who took part in a KPMG survey.
Why tech giants are becoming acquisition sharks
Apart from expanding and honing their expertise in the technology space, there may be another factor driving these cloud space acquisitions. The above companies are always on the lookout of buying startups or young companies, most likely in order to eliminate or minimize competition. According to Charles King, a principal analyst with Pund-IT, leading technology players usually buy startups and young companies to not only gain access to their technology but to keep them out of their peer’s reach. This, more than anything, helps us understand Oracle’s recent acquisition of Ravello Systems, because giants like Amazon (AMZN) already lead the cloud space and represent forces to be reckoned with.
Investors who wish to gain exposure to Oracle might consider investing in the iShares North American Tech-Software ETF (IGV). IGV has 94% exposure to application software and invests ~9.5% of its holdings in Oracle.
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