NEW YORK and LONDON, May 30, 2006 (PRIMEZONE) -- The pursuit of digital convergence, and the resulting "urge to merge," will likely bring about the next boom in the technology industry. Executives have learned from the last bubble and are approaching the current round of mergers and acquisitions more strategically, according to PricewaterhouseCoopers' "Technology Executive Connections" report, released today.
CEOs have not forgotten the lessons of the dot-com crash - but there are key differences between then and now. For one, the early tech boom was built on promised results that, in many cases, never materialized. The current rash of development is built on concrete products and commercially viable offerings, the report notes.
"The success of this second tech boom is dependent upon strategic partnerships that fulfill emerging consumer needs," said Bill Cobourn, Partner and Global Technology Industry Leader, PricewaterhouseCoopers. "Companies are under pressure to gain footholds in digitally-related industries and markets. Executives see M&A as a means of capturing entire beachheads. To be a player in today's integrated technology landscape, they must quickly take advantage of others' core competencies."
Digital convergence is the effort to bring together computer, phone, recording and broadcast technologies within an all-digital environment enabling new, flexible uses of products and services. The pursuit of digital convergence is leading to increased corporate consolidation, with no sign of let up. Approximately 64 percent of the 149 technology executives surveyed for PricewaterhouseCoopers' report expect the consolidation trend to continue over the next three years.
CEOs surveyed by PricewaterhouseCoopers fully expect a few flops and are treading more warily as a result. Forty-one percent of respondents anticipate major corporate failures, perhaps stemming from companies that reach too far beyond their strongest skills.
"CEOs, while excited about the possibilities of digital convergence, are carefully looking out for the long-term financial viability of their companies," said Cobourn. "Respondents to our survey are looking to deliver enhanced products, gain new customers and increase market share without taking on unnecessary risk and devaluation."
Survey participants listed software developers are the most likely target for acquisition (49 percent), followed by business information content developers (40 percent), wireless companies (19 percent), entertainment content developers (18 percent) and consumer electronic device makers (15 percent). Many of the smaller companies questioned were apprehensive of M&A initiated by larger entities, fearing a loss of their entrepreneurial independence and spark. At the same time, they recognize that their size does not always grant them the final say in these situations.
Survey respondents noted that alliances and partnerships are viable and sometimes preferable alternatives to M&A. Almost half of CEOs surveyed (46 percent) felt that digital convergence revenue was most likely to be generated from these types of collaborations. Only 28 percent of CEOs placed M&A at the top of that category, and 52 percent actually prefer alliances to M&A. Partnerships often offer less permanent financial risk to a corporation, although alliances may also move too slowly to capitalize on a fast-moving opportunity.
The winners in digital convergence take a cautious but quick approach to M&A. Careful consideration and strategizing is a necessity -- decision-makers must consider a deal from many angles. These points of examination include the culture of the possible acquisition, likelihood of retaining key staff members, cost balance effects and how the market would value the deal. Companies that then integrate quickly report more favorable productivity and profits.
"Corporations are wholeheartedly and successfully leaping into digital convergence," said Cobourn. "Due diligence and a vigilant analysis of what each party brings to the table will help executives determine if they should pursue M&A, or if an alliance or partnership will meet their needs. We expect to see drastic increases in all of these areas over the next few years, without repeating the same mistakes of the last tech boom on a large scale."
Notes to Editor:
PricewaterhouseCoopers' Technology Executive Connections is a series of surveys of senior leaders running technology companies worldwide to explore, understand and share ideas on today's pressing business and strategic issues. The surveys are conducted in cooperation with the Economist Intelligence Unit. To find out more about PricewaterhouseCoopers' Global Technology practice or about Technology Executive Connections visit: www.pwc.com/techconnect.
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