Acquisition offers fast track route to innovation in tech sector

Perhaps more so than in any other sector, businesses in the technology arena need to stay one step ahead of the crowd. Our cumulative scientific knowledge is expanding all the time and companies that don't manage to reflect this through innovation have little hope of increasing their profit margins.

But the pace at which new technologies are emerging is expanding exponentially and skewing profits within the technology sector. PwC's recent study, Seizing the Innovation Edge, looked at the technology, media and telecoms (TMT) industry and highlighted the disparity in success rates when it comes to innovation and profit.

Of the 374 TMT executives from 20 different countries surveyed by PwC, the most innovative 20 per cent surveyed stated that they expect to see a growth rate of nearly 90 per cent in the next five years. The least innovative TMT companies predicted growth of just 22.2 per cent.

The disparity appears to be driven at least in part by the high requirements when it comes to innovation. Dan DiFilippo, global TMT leader with PwC, said that just developing an innovative product or service is no longer sufficient to “secure and maintain a leadership position in today's market”. He continued: “Companies must have a consistent innovation strategy, which separates them from the competition as our survey results demonstrate. Companies that adopt a coherent innovation strategy, with a greater proportion of radical innovation and a more diverse innovation portfolio, enjoy higher revenue growth and a strengthened competitive position.”

Given the breadth of development within the sector and the challenge of keeping pace, some firms are looking to acquisitions to give them an immediate boost. Intermedia is one such company. As a cloud computing service provider, Intermedia is operating in a very new sector of the technology industry that has only entered mainstream discourse in the past couple of years. The company has worked hard to maintain an innovative edge over its competitors, but the rate at which cloud computing is evolving as a business has made this an ambitious strategy.

Intermedia saw a fast-track route to innovation through acquisitions. Earlier this year, it targeted SaaSID, a firm founded by entrepreneur Ed Macnair, with innovation at its very core. Macnair told the Business Sale Report how he ensured SaaSID would deliver technology on the cusp of the industry from the start: “I was trying to understand what the big trends were in the market so I went to talk to all the CIOs that I knew of - all my previous customers - and asked them what they were worried about.

“Everybody said it was the whole move to the cloud because from a security perspective, it's a nightmare; they're all using applications that they don't own anymore, that are hosted by somebody else, they need to be able to safely authenticate the users of these applications but also be able to audit usage on these applications as well.”

SaaSID's thorough market research and hard work meant that it delivered an innovative service right from the word go. Among its first customers were GroupOn and Moneysupermarket.com, both of whom recognised the value in the security product.

Intermedia was also quick to acknowledge that SaaSID's product – a cloud security system that sits in a user's browser and applies corporate security controls to web-based applications – was something unique, and approached Macnair with an offer. Upon acquiring the company, Phil Koen, Intermedia chairman and chief executive, said: “Ed Macnair and his SaaSID team have rapidly forged a reputation as innovators in the security space. We will invest in and hasten the speed with which this ground-breaking technology is available to our customers.”

Truly innovative and successful technology acquisitions are in high demand; Intermedia was just one of three unsolicited approaches that SaaSID received. In the end, it was Intermedia's “vision” for the future business that determined its success.

Macnair said: “The financial consideration was pretty much the same with the three companies that were looking for the business. What swung it for me was that they shared our vision of where the product would go and where the market would go.

“But also, they were the right people that I felt comfortable selling my company to … that makes a huge difference.”

Intermedia's acquisition of SaaSID is not an isolated case; there are dozens of desirable targets cropping up everyday, and dozens more business buyers competing to take them on in a bid to fast-track their own path to innovation and growth. Competition and emotions are high but it's clear that buyers need to personalise their approach and ensure they can offer not only the financial reassurance, but also a long-term plan for the continued success of the target firm.

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