Mergers and Acquisition (M&A) activity in the Internet of Things (IoT) and related segments including the connectivity and wireless markets hit an all-time high in 2015. Activity continues unabated, with no signs of slackening.  In the first four months into 2016, the M&A activity is already matching and may eclipse the pace set in 2015, which was a record breaking year both in terms of the number and value of acquisitions.

The biggest M&A deal of 2016 to date, so far is the February announcement that Cisco was buying Jasper Technologies IoT services’ platform for $1.4 billion. But the year is still young and more high level acquisitions will undoubtedly follow.

The most desirable acquisition targets are companies whose core competencies are concentrated around analytics, security, connectivity platform capabilities and services. And within those product categories IoT vendors are especially eager to acquire companies in hot vertical segments including:

•  Automotive
• Consumer Wearables
•  Healthcare
• Industrial IoT
• Manufacturing
• Retail
• Smart Home
• Transportation

The frenetic pace of the M&A activity reflects the plethora of initiatives in the IoT space: new product introductions, partnerships and standards efforts all of which are generating demand and increasing mainstream deployments.

The rapid rate of development in the high technology industry in general and in the IoT segment specifically is also accelerating M&A activity. Many vendors feel they cannot wait years for internal research and development (R&D) initiatives to reach their full revenue potential and they fear rivals will overtake them. A targeted acquisition is often the surest and quickest way to gain immediate entre, market share and credibility into a specific IoT market segment and stay ahead of or at least abreast of the competition. Acquisitions – assuming they are successful, and there are no guarantees -- offer the potential for vendors to swiftly segue into new, emerging markets that offer greater immediate and long-term strategic growth opportunities.

The rise in IoT mergers and acquisitions over the last two years is also indicative of the mounting pressure confronting nearly every data and telecommunications vendor to generate new sources of revenue as sales from traditional core product lines contract. 

Changing market dynamics have created a surge in IoT M&A activity.

At the end of 2010, the industry counted a scant one dozen acquisitions in the then fledgling IoT market. By the end of 2015, SA estimates there were 81 mergers and acquisitions, a nearly seven-fold increase in five years (See Figure 1). Also notable is the increase in the worth of the companies being acquired.  It’s true that top tier IoT vendors may still purchase niche startups just out of stealth mode for relatively modest prices of $50 million, $100 million or $200 million (US dollars) for a promising IoT product, engineering talent, plus a valuable patent portfolio (present or future). But M&A deals of $1 to $2 billion are increasingly common and mega-billion deals – like Intel’s purchase of Altera for over $16. Billion, is no longer a rarity.

The value of the IoT deals indicates the lengths to which the major vendors will go to maintain their current leadership positions and secure their place in the IoT firmament over the next three-to-five years. Additionally, the celerity with which the deals are occurring mirrors the quickening pace of IoT product rollouts and adoption.     

This in turn means that IoT vendors must deliver end-to-end solutions.

Organic in-house research and development (R&D) initiatives are still very much a necessity. So, too are strong patent portfolios, innovative engineering teams, broad partner ecosystems and deep service and support organizations.   

However, a well targeted merger and acquisition provides vendors with immediate tactical and strategic opportunity to gain market share, increase their customer base, boost revenues and advance IoT goals and increase influence. A focused M&A has the added benefit of consolidating the industry and reducing the number of competitors. 

IoT is a burgeoning market. And one of the hallmarks of its emergence will be a continued, high level of M&A activity as the major players all jockey for position across the various vertical market sectors. That said, the success of individual mergers and acquisitions is not guaranteed. IoT vendors must still perform due diligence to ensure that they purchase companies whose IoT technologies fill a specific product need and is a good business fit.