“The key to making acquisitions is being ready because you really never know when the right big one is going to come along” – Benjamin Franklin
The leading analog semiconductor company Avago Technologies is all set to buy its competitor Broadcom for $37 billion in cash and stock, merging two leaders in wireless and wired communication semiconductors.
This news has rocked the technology world as it is seen as the biggest chip deal in the history according to the data compiled by Bloomberg.Is Avago Technologies the next Valeant Pharmaceuticals of the semiconductor industry?:
We talk about such industries, as Semiconductor, Pharmaceuticals, Bio-medical and Healthcare that have, in the past, relied on strong research and development (R&D) departments to innovate and convert those innovations into business growth.
However, with the fast paced business world looking for a quick return on investments, many companies have started adopting the growth-by-acquisitions strategy. For instance, Valeant Pharmaceuticals International spent $19 billion on 40 acquisitions since 2008.
Through these takeovers, Valeant Pharmaceuticals’ market capitalization has increased exponentially from $2.5 billion at the start of 2010 to $ 80.1 billion. This strategy has pushed Valeant Pharmaceuticals into the big leagues with the likes of Johnson & Johnson, Pfizer, and GlaxoSmithKline.
The bigger picture!:
These recent developments have made me curious to look at the bigger picture. There is a paradigm shift in the way technology innovations are being bedded down in the industry.
Venture capital-backed start-ups that have innovative and marketable products are being acquired at a much earlier stage of their development by big corporations that offer entrepreneurs a rapid path to growth and scale.
For the big corporations, in turn, these startups balance their in-house R&D, with an earlier but riskier starting position in emerging technologies. To look beyond the more obvious results of big corporations adopting such a strategy is that it has matured the entrepreneurial scene across industries.
This, in turn, has created additional economic benefits, new jobs and has inspired many young engineers to become the new think tank. Take a look for example at the new platform Traxcn. This platform aspires to become the next Gartner specially geared to track and analyze start-ups for venture capitalists and facilitate deal discoveries.
The bottom line of Innovations:
Innovation is still very much relevant in the Wall Street business world. A growth-by-acquisitions strategy has opened up a way for the engineers to venture beyond their labs into the business world.
On the other hand, the corporate executives still have to manage R&D well and not rely solely on acquisitions to do the job. However, given how fast things are moving, buying startups is becoming an increasingly important part of a corporate executive’s toolkit.