Mergers and acquisitions (M&A) have always been a crucial component of scaling business for European companies. From gaining a competitive advantage in the market and leveraging synergies and economies of scale to optimising for tax benefits, M&A is driven by a diverse set of needs – targeting new customer types, expansion into new regions and verticals, and maximising revenue potential, to name a few. Some prominent examples of mergers in recent years are Carrier Global’s acquisition of Viessmann’s Climate Solutions division in Germany, valued at $13.2 billion, or Switzerland-based Glencore’s bid to acquire Teck Resources for $31.4 billion.
But M&A activity across Europe and the UK has witnessed a cyclical trend over the years. As winds of recession increase, M&A activity tends to rise. With decreasing inflation, interest rates are expected to follow suit, leading to a better deal environment, as analysts predict. Acquiring large or midsize companies involves complex processes beyond funding, such as combining staff, operations, and IT systems. Global economic instability, marked by high inflation and other factors, adds to the challenges. Here’s one proofpoint of these challenges’ collective impact: M&A volume declined 33% from the global M&A volume of $1.95 trillion as of the third quarter of 2023 compared to the same period last year, which marked the lowest three-quarter total since 2013.
Top M&A challenges facing European businesses
Organisations face a myriad of technical M&A challenges, including:
- Integrating new systems with existinglegacy systems
- Data migration, management, and integrity
- Ensuring security and resiliency against cyberattacks
- Regulation requirements across various jurisdictions
Beyond such technical challenges, organisations are also required to prioritise staff retention and training to preserve key talent and imbibe a cohesive work environment during transitions, ensuring continued productivity and success post-merger. All of these challenges, if not planned for and managed effectively, can negatively impact the business and its clients.
Software provider companies, in particular, are facing some of the most challenging times recently, driven by activities such as companies selling off assets, getting acquired by another organization, or offloading their development and delivery center’s as a response to the economic conditions. Such activities create challenges like rebadging, where employees are reassigned to new roles or organization’s.
‘Six Levers’ to navigate M&A challenges
Navigating through such turbulent changes will require software providers to forge a new way forward while balancing the need to reduce costs without sacrificing strategic initiatives, technological innovation, and digital transformation. Software providers can leverage six levers to navigate these headwinds: scalable engineering, capability centre evaluation, legacy carve-out, professional services, R&D IP creation, and portfolio rationalisation.
| Scalable Engineering Right-shoring global engineering capabilities to find an optimised blend of engineering resources, costs, and talents to continue long-term digital transformation efforts and deliver services. | Capability Centre Evaluation Scrutinising service delivery capabilities of the in-house centres to ensure they match-up with current service demand, future strategies, and profitability targets. | Legacy Carve-Out De-emphasizing non-strategic products and relying on partners for maintenance and support going forward. |
| Professional Services Relying on partners for professional services to free up management bandwidth and focus on what’s important for the core business, optimise expenses, and improve the overall bottom line. | R&D IP Creation Tapping a partner for a specific IP to gain more flexibility and a variable cost structure to access additional R&D capability, talent and technology expertise. | Portfolio Rationalisation Retiring parts of a provider’s portfolio that are not being utilised, merging common elements, and focusing on scaling where there is the best synergy. |
Each of these levers determines the intended result of achieving cost reductions and operational improvements while enabling critical digital projects to proceed. In addition, elements of all of these levers can be used to gain access to new enterprise customers.
The crucial role of technology in M&A activities
In addition to these challenges, European regulations like the EU General Data Protection Regulation (GDPR), Digital Operational Resilience Act (DORA), and Gen AI Act pose significant hurdles. For successful mergers and acquisitions, businesses require dependable partners who can address trust, sustainability, and diversity issues collaboratively and navigate M&A complexities effectively.
Persistent has an extensive history of assisting all kinds of businesses with such challenges and offers comprehensive solutions tailored to the needs of organisations, with expertise in software development, data privacy, cybersecurity, and much more. We engineer next-generation digital products and provide software-centred capabilities by leveraging our product development DNA and a 30-year legacy of leadership in product engineering and platform engineering services. Our security assurance services help businesses strengthen their application development lifecycles by simplifying application security and compliance testing.
Our deep industry knowledge, extensive partner ecosystem, and data-driven technology insights ensure the delivery of value-added services that drive transformation and innovation. We distinguish ourselves through our commitment to success, a zero-cost approach, and our focus on delivering tangible results. Our tools-like the ExtenSURE framework is designed to solve portfolio and tech debt-related challenges for companies involved in M&A activities. In addition, our nearshore centres in Poland, Romania, and France facilitate seamless collaboration and support with M&A opportunities, enhancing our position as the right partner for European businesses.
The M&A trends in Europe are characterised by a dynamic interplay of economic uncertainties and strategic imperatives. While such economic uncertainties add more complexity, they could also accelerate future M&A activities as struggling software providers are left with no choice but to seek merger opportunities, whereas stronger companies view M&A as a key strategy to expand and strengthen their market position. Effective planning, modern software system integration, transparent communication, retention of key personnel, and client retention strategies will prove critical to navigating such uncertainties. Learn how Persistent can help you address your merger and acquisition challenges and improve operational efficiency with innovative technologies. Connect with us today.
