Mergers and Acquisitions (M&A)
One of the most common strategies used by IT companies to acquire other companies is through mergers and acquisitions (M&A). M&A involves two or more companies coming together to form a new entity, either as a merger or an acquisition. In a merger, both companies retain their identities and operate under one umbrella. In an acquisition, one company becomes a subsidiary of the other.
The benefits of using M&A include access to new technologies, increased market share, and economies of scale. For example, in 2019, Dell acquired EMC for $67 billion in cash, which allowed Dell to expand its IT infrastructure offerings and gain access to EMC’s cutting-edge technologies.
However, M&A can also be risky as it involves integrating two different companies with different cultures, processes and systems. It is important for IT companies to carefully plan and execute their M&A strategy to minimize the risks and maximize the benefits.
Joint Ventures
Another strategy used by IT companies to acquire other companies is through joint ventures. Joint ventures involve two or more companies partnering together to create a new entity, which can operate as a separate legal entity or under one company’s umbrella. Joint ventures are commonly used in IT industries where there is a need for specialized expertise and resources.
For example, IBM has formed joint ventures with several other companies in the past, such as its joint venture with Watson Health to develop new healthcare technologies. By leveraging each other’s strengths and expertise, these joint ventures can create innovative solutions that neither company could have developed on their own.
Acquisition of a Startup
IT companies may also acquire startups to take full control of them. This strategy allows IT companies to gain access to new technologies and innovative ideas while also avoiding the risks associated with launching and growing a startup from scratch.
For example, in 2019, Microsoft acquired GitHub, a popular software development platform, for $7.5 billion. This acquisition allowed Microsoft to expand its cloud computing offerings and gain access to GitHub’s innovative technologies and user base.
Acquisition of a Competitor
Finally, IT companies may also acquire their competitors to take full control of them. This strategy can help IT companies to eliminate competition and increase market share. However, it is important for IT companies to carefully consider the potential risks associated with such acquisitions, including legal and regulatory issues, cultural differences and potential backlash from customers.
Case Study: IBM’s Acquisition of Red Hat
In 2019, IBM acquired Red Hat, a leading provider of open-source software solutions, for $34 billion. This acquisition allowed IBM to expand its cloud computing offerings and gain access to Red Hat’s innovative technologies and user base.
According to Arvind Krishna, CEO of IBM, the acquisition of Red Hat was a strategic move that would help IBM to accelerate its growth and compete more effectively in the cloud computing market. “Red Hat is the clear leader in open-source cloud software solutions, and together we will be able to offer an unmatched portfolio of technologies and services for our clients,” said Krishna.
Summary
Acquiring another company can be a strategic move for IT companies looking to expand their market share, increase revenue and gain access to new technologies. However, it is important for IT companies to carefully plan and execute their acquisition strategy to minimize the risks and maximize the benefits. By understanding the different strategies used by IT companies to acquire other companies and taking full control of them, IT companies can make informed decisions and achieve their business goals.