Search

M&As At An All-Time High in Unified Communications

There have been six significant “Merger waves” that have taken place in the United States’ history, resulting from a combination of technological, economic, and regulatory activities. Mergers and Acquisitions are nothing new in the business sphere, but the last several years proved to be the “perfect storm” and accelerated the process in the Unified Communications space. The concept has been around for quite some time, but the Covid pandemic and other factors have led to M&As at an all-time high in the UC space.

The sheer scale of the Covid crisis was unprecedented and led to a response from companies and governments alike to reset equity markets. During the first half of 2020, M&As across all industries dropped 49 percent. The deal values were down 22 percent from the year before and many deals ultimately fell through. These challenges were unique to each industry, triggering a financial shock and causing leaders to reposition themselves for the future.

Chart for M&A records from 2015 to 2021. See paragraph below.
Source: Refinitiv

Only a year after the pandemic hit, M&As in general shattered records in 2021, with $5.9 trillion and over 63,000 mergers and acquisitions, according to data from Refinitiv. The number of deals was up 82 percent, with tech comprised of one-fifth of the total deal value. The previous high was in 2015 at $1.5 trillion. 

As we press on further into the “new normal,” the Unified Communications sector has risen to the occasion and come out relatively unscathed, positioning itself beautifully and registering all-time high M&As. What’s behind this? Well, the pandemic made UC mainstream, creating opportunities for M&A to accelerate growth among service providers. UC vendors have consolidated, and investors have sunk their teeth into the most significant shift in telecom demand in history. Service providers with the ability to identify their acquisition targets and move forward can integrate these into their operations, leading to exponential competitive advantages.

Although UC M&A has its challenges, it can be lucrative when service providers control their overhead and direct costs, making efficiency gains throughout the process. The dynamic is appealing for a roll-up strategy and possesses all of the ingredients necessary for multiple acquisitions. Scale should bring accretive benefits, which is also why it’s attractive to a roll-up strategy. It sounds kosher on the surface, but the path ahead may be turbulent. However, many note that it’s worth it in the long term.

Notable UCaaS Acquisitions

Research from Global Data found that global tech M&A deals had reached $3 trillion by Q3 of 2021, largely supported by the tech, media, and telecom sectors. The trend seems to be much of the same moving forward in 2022.

Snigdha Parida, Analyst on the Thematic Research team at GlobalData is quoted as saying, “the M&A market remains strong as companies look to gain new tools and technologies to help them adapt to the post-COVID world. The high market valuations for many TMT companies provides a ready currency with which to finance new deals. Total transaction values at or above the trillion dollar level are expected to continue into Q4 2021 and potentially beyond.

Motivations that drive M&As include a combination of organizations looking to expand their portfolios, grab IP or patents, expand customers or revenue, or hire a functional team. Since remote work has become a hot topic and has contributed to the phrase we so often hear, “the new normal,” it’s not outrageous to see that cloud-delivered communication options have become incredibly successful.

Unified Communication as a Service (UCaaS) is among the hottest trends on the market right now for mergers and acquisitions and equity deals. The activity is centered around UCaaS companies that provide cloud-and-software-based solutions for voice, collaboration, voice, and Contact Center as a Service (CCaaS).

Below are some notable UCaaS M&A deals in the past few years:

  • Nuvias acquires Alliance Technologies to expand Zoom & Microsoft Teams
  • Inflow Communications acquires EPIC Connections
  • 8×8 acquires Fuze
  • Ericsson acquires Vonage to control communication APIs
  • BCM One acquires CoreDial & Skyswitch
  • Enreach acquires DSD Europe & CloudLand
Table of recent mergers and acquisitions.
Source: Q Advisors

Execution is Key For UCaaS M&A

If you’re in cybersecurity and looking to scoop up a UCaaS service provider, you may encounter some challenges. It’s not impossible, but you’ll run into some trouble along the way. When it comes to successful M&As, invest in a business with a similar culture and approach that serves similar demographics. Biting off more than you can chew will lead to you falling victim to this ugly statistic – 70 to 90 percent of acquisitions will fail. If you want to avoid that, following some simple advice can save you from a nightmare-ish scenario. 

If the business you’re looking to acquire has the following similarities, it’ll improve the odds of a successful M&A:

  • Equipment & Hosting
  • System Integrations
  • Handset support
  • Billing
  • Network Interfaces
  • Licensing
  • Engineering Support
  • Technical Support

Another key challenge is finding acquisition targets at a price point that delivers an immediate return on investment (ROI) and maximizes the accretive value of acquisition through smooth integrations of a new service provider’s operations. 

One determining factor on whether the M&A will succeed is the UC platform sold and the experience provided for end-users. The platform is a central component that separates the business from an M&A success story or a statistic, which is, unfortunately, all too common based on the figures mentioned above. It generates a competitive advantage that’s easily digestible and can integrate acquisitions. In the past, M&As for service providers were about how much cash they could come up with, whereas now, it’s about having the right technology in place to maximize accretive value and reduce risks.

CEO of inTec, Simon Howitt, portrait and quote- “roll-up strategies work when a service provider takes the onboarding and integration of the acquisition target seriously. The failure rate is high in M&A because the whole approach to integration isn’t done with the rigor it should be. Every business you acquire has different suppliers, reporting, CRMs, and processes. You have to solve these integration challenges and deliver consistency and commonality to get the efficiencies and synergies you’re looking for.”

CEO of inTec, Simon Howitt, had something to say about this – “roll-up strategies work when a service provider takes the onboarding and integration of the acquisition target seriously. The failure rate is high in M&A because the whole approach to integration isn’t done with the rigor it should be. Every business you acquire has different suppliers, reporting, CRMs, and processes. You have to solve these integration challenges and deliver consistency and commonality to get the efficiencies and synergies you’re looking for.

This is the first in our series of blogs on M&As. If you see the value in an M&A for your business and would like to learn more, make sure to read our White Paper, Service Provider Roll-Up Strategies: Accelerating M&A with an Agnostic UC Platform.