Mergers, acquisitions and venture funding of startups, especially in the technology sector, are increasingly becoming an important tool for legacy U.S. corporations across sectors as a way to keep up with the pace of production and technology and to draw in more tech-savvy consumers.
M&A, private equity and venture capital database and platform PitchBook reported that, in 2016, non-tech companies spent almost $10 billion buying venture-backed U.S. startups. The 2016 figure is nearly double the amount spent in 2015 and represents the highest total spent on mergers and acquisitions of tech startups in at least five years. Venture capital investors and analysts are anticipating that this trend will continue into 2017 as quality software becomes an increasingly important feature for all enterprise companies and SMBs to compete in an increasingly digital marketplace.
Jason Gere, a consumer products analyst at KeyBanc Capital Markets, was quoted as saying: “Generally speaking, [older companies buying startups] are overpaying for assets right now. They’re hoping that what they’re doing is creating another avenue for growth.”
Last year saw many major companies acquire tech startups or large corporations branch out into venture capital funding. Think, for example, of Walmart’s $3.3 billion acquisition of online marketplace Jet.com as a means to expand the retail behemoth’s eCommerce presence (and to compete with increasingly dominant Amazon). Additionally, consider Unilever’s $1 billion acquisition of Dollar Shave Club to leverage the startup’s data insights and expand its business model in terms of offering and reach.
But it wasn’t just retail that got in the buying game. For instance, The Wall Street Journal said that 148-year-old lawn products company Scotts Miracle-Gro acquired two landscape technology startups at the end of 2016 — one that makes a digital sprinkler system and another that makes sensors to tell gardens when to water — to boost their technology offerings. In addition to mergers and acquisitions, brands like Kellogg’s, JetBlue and many others in retail, manufacturing and other traditional sectors branched out into venture funding in 2016.