Digitization Drives Mergers

The tech and medical sectors are leading the way on M&A.

The mergers and acquisitions market is soaring again in 2021. Global tech companies, large biopharma and consumer goods outfits are feverishly acquiring competitors in order to gain scale, digitize and accelerate growth.

Financial markets are supportive, inasmuch as interest rates remain low and special purpose acquisition companies (SPACs) are plentiful. According to Morgan Stanley, 300 SPACs were in search of acquisition targets in February.

The tech sector is particularly hungry. Last year, high tech companies spent $634 billion buying each other; the M&A market for Silicon Valley-type companies rose 92%, to its highest level since the dot.com collapse more than two decades ago.

Nevertheless, records are made to be broken. US-based Okta, an internet identity provider, recently announced the acquisition of Auth0, an Argentine authentication and authorization platform, for $6.5 billion in an all-stock deal; Citrix took Wrike, a project application maker, for $2.25 billion; and Cisco grabbed Acacia, which makes optical interconnect tools for networking systems, for $4.5 billion. According to Dealogic, 2021 deals are three times more expensive than 2020 acquisitions. Cisco, for example, announced its interest in Acacia back in July 2019; after much back-and-forth discussion, Cisco sweetened the pot by $1.9 billion to conclude the deal. 

Many companies are busy finding complimentary businesses. Irish power management company Eaton is spending $2.83 billion to add Cobham Mission Systems, a supplier for critical control systems such as air-to-air refueling, to its collection and $1.65 billion for competitor, Tripp Lite.

Medical product manufacturers are also in high demand. Boston Scientific had a hard time selling its devices in 2020; hospitals were focused on the Covid-19 pandemic and didn’t have time for non-urgent businesses. But it’s betting on a rebound by buying Israeli Lumenis for $1.1 billion and Preventice Solutions for $925 million.

The same strategy prevails in consumer goods. In February alone GlobalData counted more than $15 billion worth of deals. Here, French Financiere Agache and L Catterton snapped up Germany’s Birkenstock for $4.8 billion. There, Japanese Shiseido sold its personal care division to Luxembourg’s CVC Capital Partners in a deal worth $1.5 billion.

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