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What Are Technology Acquisitions?

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  • Written By: Geri Terzo
  • Edited By: PJP Schroeder
  • Last Modified Date: 06 December 2016
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The technology industry is one that is filled with companies that have the potential to be rich in cash. Subsequently, many choose to grow their businesses via technology acquisitions. This is the practice of buying another technology company and integrating the business into the buyer's operations. As technology advances so frequently and old technologies become obsolete without much warning, companies are almost constantly seeking ways to grow or remain competitive, and merger and acquisition activity is a major component of that growth.

The advent of an emerging technology may prompt a company to expand beyond its core business in an attempt to capitalize on trends. New developments could certainly inspire a company to grow via technology acquisitions rather than investing in organic growth, which is a form of internal expansion. When a larger technology company recognizes an industry development elsewhere that could eventually become a competitive threat, it might attempt to make an acquisition in order to profit from that emerging technology. The cost and time involved with developing a new technology internally may just be too much in comparison with growing via acquisition.

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Industry-leading technology companies often have the most cash on hand and are the most likely to make technology acquisitions using all cash. This saves the company from having to turn to banks for help in financing a deal. When a company is in the market for an acquisition, it may announce these intentions to the public in a financial statement or a press release. The company might be interested in expanding its current business line and on the lookout for businesses with synergies to its own or could prefer to expand into a different technology altogether.

There are plenty of other companies that seek technology acquisitions for growth even if money has to be borrowed to make the deal happen. When economic conditions are solid, financial institutions look more favorably on extending loans to companies for technology acquisitions. During a robust economic period, merger and acquisition activity among technology companies may be on the rise, driven by the financing opportunities available. When borrowing costs are low because of a low interest rate environment, money is said to be cheap, and companies are even more apt to seek financing to pursue technology acquisitions.

Cross-border deals are a type of transaction that can occur in any industry, including technology. A technology company might be looking to expand into a new business line in order to better compete with industry leaders. Sometimes, these opportunities are not found in a company's own backyard, and as a result, international prospects are identified. International technology acquisitions require additional approvals from the regulatory agencies in each country but, once approved, give a technology company a global presence.

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