Businesses are competing harder than ever to attract and retain customers. Strategic buyers are pursuing acquisitions aggressively to gain new technologies, increase their offerings and expand their customer bases.
“Strategics have been really active,” says John Neuner, Harris Williams managing director. “They are aggressive in pursuing the assets they want, as long as it fits within their strategy. Scale is critical to them and they have to meet consumer demands by adding new capabilities.”
“Capital is at the ready and will continue to be deployed in 2019 to acquire new brands, scale and technologies that facilitate growth and enhance perceived value to the customer experience,” says John Potter, U.S. consumer markets deals leader at PwC, in the firm’s Q4 Consumer Markets Deal Insights Report.
Technology plays a key role in many transactions. But while technology is enabling developments, it’s not an end unto itself for many corporations. Instead, strategic buyers are using innovations as a means to achieve goals, such as improving the customer experience.
For example, Target paid $550 million for Shipt in 2017. The deal will help Target deliver everyday items, such as groceries, straight to customers’ doors.
In 2018, Amazon bought online pharmacy PillPack. The target delivers medications in pre-sorted dose packaging to customers. PillPack aims to help customers save time.
Customers want more convience when it comes to mobile payments, and that is another M&A driver. Grubhub is buying restaurant payments processor LevelUp.
Here are 7 outcomes strategic buyers hope to achieve through today’s M&A deals.
Improve the customer experience and relationship
Businesses are vying to step up the services they offer to customers. One area where companies are looking to invest more is delivery, since consumers are ordering more online. Target Corp. (NYSE: TGT) purchased Shipt Inc. for approximately $550 million in 2017. Shipt uses a network of shoppers to deliver everyday items, such as fresh groceries, the same day to customers’ doors, helping them save time.
“With Shipt’s network of local shoppers and their current market penetration, we will move from days to hours, dramatically accelerating our ability to bring affordable same-day delivery to guests across the country,” says John Mulligan, Target chief operating officer.
Nike Inc. (NYSE: NKE) is making new bold moves through M&A to gain more insights to how its customers shop and what they need. The company, which historically has not been acquisitive, made a pair of deals in 2018 to bolster its digital and tech capabilities. Nike bought Invertex Ltd., which uses 3-D technology and mobile applications to analyze consumer buying behavior. The company also purchased consumer data analytics firm Zodiac Inc.
Amazon.com Inc. (Nasdaq: AMZN) bought online pharmacy PillPack in 2018. The target delivers medications in pre-sorted dose packaging, coordinates refills and renewals, and makes sure shipments are sent on time, aiming to make taking medication easier for people on multiple daily prescriptions. “PillPack is meaningfully improving its customers’ lives, and we want to help them continue making it easy for people to save time, simplify their lives, and feel healthier,” says Jeff Wilke, the CEO of Amazon Worldwide Consumer.
Integrate data with software
Companies are becoming more efficient, and businesses are relying on data to improve their operations. Data management, data virtualization and artificial intelligence are among the software developments appealing to strategic buyers.
Cision Ltd. (NYSE: CISN) said in 2019 that it is buying TrendKite Inc. for $225 million. TrendKite uses artificial intelligence to help communications professionals assess the impact of their efforts. “TrendKite and Cision have a shared understanding of the communications industry’s need to quantify the business value of earned media campaigns,” says Erik Huddleston, TrendKite CEO. “The combination of TrendKite’s rich analytics platform and the Cision Communications Cloud platform will powerfully impact our joint customer base with the most robust, end-to-end earned media management solution available.”
Buyers are hot on the trail of innovations, including artificial intelligence that will drive sustainable value to customers and make companies more efficient and more effective. One recent deal that exemplifies this trend is S&P Global’s (NYSE: SPGI) 2018 acquisition of Kensho Technologies Inc. Kensho is a developer of artificial intelligence for analytics and problem solving for Wall Street and national security clients. With Kensho, S&P strengthened its own analytical tools and internal operations, as well as the insights it can provide to clients.
Expand and improve distribution
The e-commerce sector continues to grow, and companies are making acquisitions that will help them improve their logistics and distribution services. One carrier that has been doing so is FedEx Corp. (NYSE: FDX). The company acquired P2P Mailing Ltd., a U.K. provider of transportation services, in 2018.
“Global e-commerce continues to grow at a rapid pace, and more and more merchants, marketplaces, e-commerce and social platforms are looking for innovative, cost-effective ways to get merchandise from distribution points in one country to customers in another,” says Carl Asmus, CEO of FedEx Cross Border.
In 2018, FedEx said it will buy Australian logistics company Manton Air-Sea Pty. Ltd. With operations across Australia, Manton connects customers to global markets through regional gateways and relationships with multiple air carriers. Manton provides air and ocean freight forwarding services, as well as customs brokerage.
Ryder System Inc. (NYSE: R) is another company looking to beef up its logistics services. In 2018, Ryder bought fulfillment company MXD Group for about $120 million.
Process payments more efficiently
Cards and cashless transactions--among the biggest growth drivers in the payments industry—will spark M&A. In the restaurant sector, operators are scrambling to meet the demands of the next generation of diners, who want more convenience such as online ordering.
Online food ordering company Grubhub Inc. (NYSE: GRUB) agreed to buy LevelUp, a provider of payment processing technology for restaurants, for $390 million in 2018. “For the last seven years, the LevelUp team has worked to provide our restaurant partners with a complete solution to engage customers in this rapidly evolving digital landscape,” says Seth Priebatsch, LevelUp CEO. “Together, we will provide restaurants with everything they need to grow profitably as more and more diners opt for the convenience, transparency and control of ordering online.”
LevelUp gives GrubHub more tools to drive online delivery and pickup orders for restaurant chains like KFC, Taco Bell and Bareburger.
The whole payments processing sector is teeming with deals. In 2017, Vantiv Inc. (NYSE: VNTV) acquired Paymetric, which automates business-to-business payment workflows, from Francisco Partners for $550 million.
Leverage tech trends, like autonomous vehicles
The automotive industry is going through a major shift, as cars are being made with additional technology, including innovations for self-driving cars and connected devices. In 2017, Aptiv Plc (NYSE: APTV), formerly known as Delphi Automotive Plc, paid $450 million to acquire NuTonomy, which develops technology used to build self-driving cars.
“Our mission has always been to radically improve the safety, efficiency, and accessibility of transportation worldwide,” says Karl Iagnemma, NuTonomy CEO. “Together we will set the global standard for excellence in autonomous driving technology.”
Aptiv is not the only strategic buyer looking to grow in auto tech. In 2018, General Motors Co. (NYSE: GM) and Honda Motor Co. announced plans to team up to develop a new self-driving car, with the Japanese automaker taking an almost 6 percent stake in GM’s self-driving car unit.
Self-driving and electric cars are fueling activity in the auto sector, according to an AlixPartners study, and will account for 3 million auto sales by 2030. On the M&A side, about 55 percent of automotive deals between 2016 and 2017 were electric and self-driving related.
Make manufacturing processes more efficient
Manufacturing in its simplest form used to mean assembly lines comprised of humans creating and piecing together components that would eventually become an end product. Today, manufacturing is so much more. While manual manufacturing can still be a part of the process, today manufacturing encompasses humans with automated processes and the increasing use of robotics to make the process more efficient.
IPG Photonics Corp. (Nasdaq: IPGP) has bought Genesis Systems Group, a provider of robotic and automated services, for $115 million in 2019. Genesis develops robotic systems that are used in manufacturing and industrial processes.
Advances in robotic technology are making it possible to complete more complex tasks at higher speeds and with improved control and repeatability, driving M&A. In 2018, Barnes Group Inc. (NYSE: B) bought Gimatic Srl from AGIC Capital, Xenon Capital Partners and the founder of Gimatic for about $435 million. Gimatic develops robotic grippers and end-of-arm tooling systems. “With the accelerating adoption of robotic technologies, we expect favorable long-term industry trends will continue to support Gimatic’s growth into the future,” says Scott Mayo, Barnes Group SVP.
Achieve better outcomes and efficiencies in healthcare
Medical professionals are looking to reduce costs while improving patient results. That is one of the drivers attracting strategic buyers in healthcare analytics. An example of such a deal is when Medidata Solutions Inc. (Nasdaq: MDSO) bought the 94 percent stake it did not already own in healthcare data company Shyft Analytics for $195 million in 2018. Medidata and Shyft first teamed up in 2016.
“Together, Medidata and Shyft are powering customers’ digital transformation with artificial intelligence and real-world analytics to reduce risk, optimize revenue, and ultimately help patients,” says Medidata CEO Tarek Sherif.
Another deal that exemplifies healthcare data integration is R1 RCM Inc.’s (Nasdaq: RCM) 2018 acquisition of Intermedix Corp. for about $460 million. Intermedix provides data analytics to more than 15,000 healthcare providers in the U.S. R1 CEO Joseph Flanagan says the deal will help medical practices increase revenue and reduce costs “while improving the patient and physician experience.”