Published on February 9, 2024, 8:11 am

Acquisitions by major companies like IBM, Cisco, and SAP are indicative of a growing trend in the tech sector. These acquisitions provide IT executives with an opportunity to consolidate their IT spending around key vendors. After a year-long economic freeze, the tech M&A activity is heating up again, with predictions of a surge in 2024.

IBM has been particularly active in acquiring companies recently. In January, they announced the acquisition of Advanced’s mainframe modernization unit, adding to their portfolio that already includes the $4.6 billion purchase of Apptio, a business management software company. They have completed nine acquisitions this year alone, including StreamSets and webMethods from Software AG.

This increase in M&A activity is not limited to IBM. EY’s market analysis indicates that tech M&A volume and value have jumped during the second half of the year. Private equity deal volume is expected to be up 13% year over year, and corporate M&A is predicted to increase by 12%. This surge presents an opportunity for CIOs to streamline their tech stack and eliminate complexity by centralizing critical services under one provider.

Acquiring vendors can also enable companies to bring skills and technology in-house while integrating complementary capabilities through strategic acquisitions. SAP purchased LeanIX in November, enhancing its SaaS suite with visibility solutions. Cisco spent $28 billion on cybersecurity systems provider Splunk in September, aiming to create an end-to-end data platform.

However, trends in M&A can also impact CIOs and their IT estates as product licensing, servicing, and delivery modes change under new management. It can create optimization opportunities as companies grapple with shadow IT, system interoperability, and the complexity of hybrid cloud environments. Consolidation can lead to vendor lock-in for customers and potentially less favorable contract negotiations due to reduced leverage with larger vendors.

Beyond economic factors driving M&A activity, generative AI enthusiasm is also playing a role. Major vendors are racing to embed AI technology either through partnerships or by acquiring companies with AI capabilities. Technology companies are aware that they need the technology and talent to develop and utilize generative AI capabilities. Some smaller deals involve purchasing startups to onboard technical talent and develop AI capabilities.

IBM’s M&A strategy is centered around its hybrid cloud and AI strategy, focusing on adding capabilities in areas like hybrid cloud, data, automation, security, software IP assets, and consulting expertise.

In conclusion, the tech sector is witnessing a resurgence in M&A activity driven by economic factors and the race to incorporate generative AI capabilities. This trend presents opportunities for IT executives to centralize their IT spend around key vendors, eliminate complexity in their tech stack, and integrate complementary capabilities. However, it also poses challenges such as vendor lock-in and potentially less favorable contract negotiations. It is crucial for CIOs to carefully consider the impact of M&A on their IT estates while leveraging these opportunities for strategic growth.


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