M&A Season Now Officially Open

A year ago many people were making jokes quite openly about the IoT. It wasn’t uncommon to hear quips about the Internet of Nothing, the Internet of Disconnected Things, the Internet of Cars, or some other variant that questioned just how connected everything would become.

The tenor of the conversation has changed significantly in the past year. The jokes are fewer, the stakes are higher. And if as the saying goes, ‘money talks,’ it’s speaking very loudly these days. NXP’s proposed $16.7 billion acquisition of Freescale was just the start of what appears to be shaping up to be a volley. The announcement by Singapore-based Avago today that it will acquire Broadcom for $37 billion is like a cannonade. Both Freescale and Broadcom are fabless companies, meaning the assets acquired are primarily engineers and market share.

NXP also announced today that it is selling its RF Power business to Jianguang Asset Management Co. for $1.8 billion. That business is focused on the cellular base station market.

Looked at in conjunction with some other recent deals—Synopsys’ acquisition of Codenomicon last month, Mentor’s acquisition of Tanner EDA in March, ARM’s acquisition of Offspark in February, and Cadence’s acquisition of Jasper last year—the picture that emerges is not one of a mature industry looking for economies of scale and buying up companies at steep discounts. Instead, it looks more like an industry positioning for new opportunities, with companies both strengthening and streamlining their portfolios to be able to focus on it.

What makes this difficult to see individually, and sometimes even on a macro level, is that the IoT has three very distinct but related pieces—the end devices, such as wearables or home appliances; edge of the network processing, whether that’s cellular base stations, automotive hot spots, or “fog” servers; and the data center or cloud. Companies can play in any one or all of those, or in the infrastructure that connects all three.

Where the biggest profits will be is anyone’s guess, but the latest acquisitions are an indication of where companies believe they can stake out the most ground in the shortest amount of time to reap the biggest rewards. We are at the earliest stages of what resembles a massive global jigsaw puzzle. There are a few pieces in place, with many pieces still scattered on the table and a lot more that may have to be custom-cut and developed. And there is plenty of money being thrown around to buy or develop some of those pieces.

What’s unique here is that this doesn’t resemble the kind of consolidation the tech industry witnessed following the 2001 dot-com bust or the 2008 crash. It appears, at least at this point, to be more geared toward investment and positioning for what many companies now believe will be a massive growth opportunity for the future—and one that could well create giants in new markets that never existed before, and possibly supplant some of the big players that exist today. Value is relative, and it becomes more relative to more markets when everything is connected.