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Companies Embrace M&A to Support Innovation

John Shipman, Senior Financial Writer | September 25, 2017

Technological change continues to transform the business landscape at a rapid pace, making it difficult for enterprises to nimbly respond with new products or solutions. In this environment, mergers and acquisitions remain a key avenue for innovation as companies endeavor to outperform rivals.

Businesses considered to be the strongest innovators rely on a variety of channels to tap into new technologies and capabilities, according to a survey by Boston Consulting Group, though the consultancy said the most direct route has been through M&A and licensing.

Earlier this year, BCG ranked the top 50 most innovative companies [of 2016?], with Apple, Google, Tesla Motors, Microsoft and Amazon.com comprising the top five. Among those on the list that described themselves as “strong innovators,” 63% said new projects and ideas for growth often or very often come from acquisitions and licensing deals. Only 18% of “weak” innovators said the same.

Meanwhile, a report from MergerMarket details exactly this type of strategy currently in action in one area of the tech sector. The deal tracker highlighted a recent flurry of transactions and consolidation among logistics technology companies, driven in part by retailers’ efforts to stay competitive with Amazon.

Consumers’ deepening attachment to fast shipping and easy tracking of their orders has put pressure on retailers to match Amazon’s “logistical prowess,” MergerMarket says. That is forcing retailers “to either attempt to develop new systems internally, contract out their work to software firms or acquire those firms themselves to gain an edge over their competitors.” In other words, pushing them to quickly innovate.

An example of one such deal is Target’s recent acquisition of transportation tech startup Grand Junction, MergerMarket noted, which Target says will bolster its same-day delivery capabilities, among other things. With demand rising for deals like this, there’s a knock-on effect: logistics tech startups themselves are also looking at deals as a means for boosting their own growth and standing “in a frothy market,” MergerMarket added.

Of course, using M&A as a strategy to remain on the technological forefront versus competitors is not new. Boston Consulting Group used Cisco Systems (25th on its list of most innovative companies) as an example, pointing out that Cisco has made more than 175 acquisitions since 1993 – or nearly eight per year – to help maintain its leading position in networking technology.

It’s an approach that has added value, and as technology continues its relentless advance, M&A will remain a critical component for innovation. As Boston Consulting observes, “the ability to continually adapt models to successfully access and incorporate outside ideas, inventions, and tools will become even more important.”

Merrill Corporation facilitates M&A transactions through its Merrill DataSite virtual data room, which helps firms around the globe securely protect, share and collaborate on their most sensitive and confidential content. Among Boston Consulting Group’s 50 most innovative companies, 70% have been Merrill clients.

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