Blurring the Boundaries: Non-Tech Buyers Drive Record Year for Tech M&A

It doesn’t matter if you’re in telecommunications, auto or supermarkets. If your M&A strategy doesn’t involve eyeing tech companies, you soon could be in the minority.

Non-tech companies accounted for 23% of the combined value of all deals completed in the tech sector last year, rising from 15% in 2015, according to an analysis by EY.

Intensifying competition for assets caused by the entry of non-tech bidders could be pushing up prices, helping to explain why total deal values in the tech sector managed to rise by 2% to $466.6 billion last year, while M&A in all other industries fell by a collective 15%.

“The distinction between tech and some non-tech industries may well disappear in the next few years if non-tech companies’ rising role in 2016 technology dealmaking continues,” EY technology industry leader Jeff Liu, said.

Tech sector CEOs themselves are becoming increasingly nervous about disruptions as the more traditional businesses they’re threatening fight back, either by developing their own in-house capabilities or acquiring startups and more established players.

A survey of 580 tech-company senior executives conducted last year by KPMG found 78% were somewhat to extremely concerned about non-technology firms becoming technology firms.

Many deals in the tech sector last year related to the growing business importance of data and the role of the Internet of Things in making sense of it. The biggest transaction involving a non-tech buyer was Japanese telecom company Softbank Group’s $32.4 billion acquisition of British chip designer ARM Holdings.

“The next big paradigm shift is coming with the Internet of Things,” Softbank Chairman Masayoshi Son said of the deal. “I believe IoT will be a big opportunity for all mankind and all the products in the world.”

In all, non-tech firms accounted for 38% of the aggregate value of all deals associated with IoT last year.

Other notable bids by non-tech players included Verizon’s move on Yahoo’s core Internet assets and Wal-Mart Stores’ purchase of e-commerce platform Jet. Big auto companies were also active consumers of tech, with GM dishing out more than $1 billion to buy autonomous technology developer Cruise Automation.

The biggest deal in the tech sector last year was Qualcomm’s $39.2 billion acquisition of chip maker NXP Semiconductors. The Softbank/ARM deal was the second-biggest followed by Microsoft’s $26.2 billion purchase of LinkedIn.