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Over the past couple of years, Mirus has become increasingly involved with the rapidly developing Internet of Things sector including advising multiple companies across a variety of application domains on their growth and M&A strategy, as well as recently completing several important sell-side transactions in the space (see Eutecus press release).
Mirus is very excited about the opportunities for mergers and acquisitions in IoT. In fact, while M&A overall was on the decline in 2016, the number of transactions in IoT grew almost 20% (after a 25% gain from 2014 to 2015), with an order of magnitude increase in median valuations. Mirus believes these trends to be indicative of the maturation of the technology and increased competition for both product and domain expertise. IoT is no longer just a trendy buzz word, but a true technology trend unto itself, with plenty of room to grow, and M&A activity will grow with it.
At first glance, most sectors of IoT have grown or remained flat in transaction volume over the past 3 years led by accelerated growth in the Applications and Platforms sectors. Recently there has been an emergence of single-source providers offering a range of products from sensors to analytics and associated services in an attempt to pull it all together and provide a comprehensive solution across a broad range of industries. Mirus believes that these “all-in-one” platform companies are filling a short-term gap in the market left bare by a shortfall in application delivery, as many applications are not quite market ready for mass implementation. At some point, Mirus believes these all-in-one shops will be replaced by commercial off-the-shelf solutions and there will be a steady state saturation of platforms in the industry, ultimately shifting IoT transaction volume to applications from platforms and other infrastructure. In support of this, we note that the application space has consistently been one of the most active of IoT M&A domains and 2016 was another great year with application transaction volume up 40% from 2015.
Here are some of the other trends in M&A for IoT that we are currently seeing:
- Ongoing industry maturation driving application success.
- The increasingly strategic role for system integrators.
- The race to develop the broadest and most compelling portfolio of use cases.
- Low Power Wide Area Networks and NarrowBand-IoT Networks will challenge traditional telecommunications companies for IoT Business.
- The potential for security to be a short-term impediment to growth.
- Advanced technologies that support security, mobility and simulation will provide needed differentiation.
- Large global companies are buying their own connectivity.
- Hopes of finding relevance in big data and improved operational outcomes are driving investment in artificial intelligence technologies.
There is so much more that I could say about these trends, the IoT sectors (and their associated sub-sectors), and I will in subsequent posts, but for now if you would like a more in depth look at M&A in IoT take a look at our new white paper on the topic; Initiating Coverage of Mergers and Acquisitions in IoT; The Gold Rush of the 21st Century.