Mergers and acquisitions in the high-tech sector have reached historic levels. Deloitte projects “M&A activity to continue accelerating” in 2018, driven mostly by technology acquisition as the big players gobble up the smaller innovators. Big tech is flush and ready to buy out any upstarts with technology that represents a threat. In this competitive landscape, tech startups face a dilemma: take the deal or go it alone?
There is no easy answer to this question. Each startup founder must weigh a number of competing needs—investor returns, managerial autonomy, and job security for workers. Yet the trend toward more M&As in tech and other industries (notably media and entertainment) is troubling for those who prefer a competitive marketplace. If the goal of startups is to sell out or partner with a bigger competitor, conglomerates will hold more and more technology in their proprietary portfolios. Fortunately, there is a regulatory solution to M&As that present a threat to competition, but the government must be willing to use it.
Regulators appear reluctant to impose their authority on M&As in tech. After hitting a record level in 2015, the technology M&A market remained robust throughout 2016 and 2017, according to the Global Technology M&A Report compiled by Mooreland Partners. The big boys in tech—Cisco (CSCO, -0.02%), Xerox (XRX, -1.22%), and Hewlett Packard Enterprise (HPE, -0.37%), among others—are flush and ready to buy out any upstarts emerging over the competitive horizon. Xerox alone has devoted $100 million to acquire firms for the sole purpose of making them Xerox-exclusive providers, preventing them from providing their services to the competition. Deloitte’s survey of tech executives shows that more deals, and bigger deals, are expected for 2018.