How Technology is Affecting Middle Market M&A

Navidar | September 22, 2018

As virtually every sector of the economy rushes to embrace new software solutions, tech is playing an increasingly prominent role in middle market mergers and acquisitions (M&A). This trend will likely increase in 2018 and beyond. Much tech M&A activity is driven by technology firms that leverage software as a service (SaaS) models to expedite market delivery, efficiently manage updates, and greatly reduce costs.

Technology has invaded every end market, every niche, and every aspect of deal-making. The result is an increasingly competitive landscape for businesses across the economy. SaaS models allow companies to work through the cloud, offering services via a single platform. This model of efficiency is less frustrating and more cost-effective than old licensing models. It offers easy installation and updates, rapid deployment, and a more streamlined system.

SaaS saves end users money, but can actually end up being more profitable, since subscription-based models deliver a recurring stream of revenue. The increased competition and widespread use of such solutions in so many sectors is greatly increasing product demands.

Everyone has a computer in their pocket. The end user base is more sophisticated, and this will continue to drive how businesses compete with one another. SaaS eliminates the “versioning debt problem” by shifting the burden from the consumer to the vendor. Moreover, instead of sitting on a shelf—as was once common with physical software—SaaS products are more frequently used. This gives businesses further opportunities to market to customers. The success of SaaS is directly tied to how well they serve customer needs, offering opportunities for growth that benefit both companies and the consumers they serve. There’s total alignment of incentives here.

We’ve seen in the past companies like Oracle and Microsoft grabbing SaaS firms at a rapid clip. These companies help tech giants evolve into the 21st century and beyond. That’s a trend that will continue. SaaS and other tech companies need to be prepared to grow and adapt to these trends. Consumers want easy software and excellent support. The giants want to acquire companies that make it easy to offer this. So being deal-ready means being prepared with excellent SaaS products, good book-keeping, and being ready from day one to merge with a larger entity.