Proving the Business Case for the Internet of Things

IoT acquisition activity surged in 2014, says 451 Research

Steve Rogerson
January 28, 2015
Acquirers stepped up their activity in the IoT marketplace in 2014, spending about US$14.3bn to acquire more than 60 companies, according to New York based market analyst 451 Research. That spending is almost eight times the total spent by acquirers prior to 2014 and represents a fortyfold increase over 2013.
The number of deals increased more than twofold as companies such as Google, Samsung, Cisco, Intel, PTC and Qualcomm staked out their ground in an effort to position IoT as a key contributor to corporate strategy.
451 Research tracks IoT and wearable tech deal activity via its proprietary database, the 451 M&A KnowledgeBase, which has recorded more than 40,000 technology merger and acquisition transactions since 2002.
The sharp rise in deal-making activity in 2014 suggests that market forces surrounding IoT have become sufficiently compelling to demand action, according to Brian Partridge, vice president of 451 Research’s mobility team.
“Acquirers don’t want to cede anything to a growing list of competitors as demand for IoT services in both consumer and industrial markets builds,” he said. “The expected growth in this segment will drive enterprise spending across a myriad of building-block categories from embedded computing systems to communications infrastructure, IP networking, cloud and data centre technologies that will form the foundation of the next generation of connected machines and services.”
He said the company expected to see even more activity in 2015 as the cost and risk hurdles to IoT adoption were overcome and the competition to serve these markets increased.
“Any firm with the strategic intention of being an IT infrastructure and services leader over the next ten years does not have the option to ignore this market,” he said.
M&A activity in 2014 is almost evenly split between IoT-enabling horizontal infrastructure and vertical applications.  In the infrastructure arena, acquirers notched 20 deals, primarily targeting a broad range of sensors, semiconductors, software platforms, security infrastructure and connectivity technologies needed for IoT to work effectively. Within the verticals, the transport and logistics segment led the field with 11 transactions, followed by the fitness and healthcare segment with ten transactions. Acquirers also purchased five companies related to the home automation segment.
Key transactions identified by the research team included Google’s acquisition of Nest Labs for $3.2bn in January and Nest Labs’ subsequent acquisition of Dropcam for $555m in June. These deals were significant due to their size, revenue multiples, market valuation and the brands behind the transactions. Google and Samsung view the connected home as logical extensions from their respective positions of strength in smart devices and operating systems. 
PTC’s acquisition of Axeda for $170m in August provided a lens into the changing competitive dynamics for making products smart. PCT's IoT acquisition spree lines it up as a competitor to more traditional enterprise IT software players such as SAP, IBM and Oracle.
Intel acquired Basis Science for $100m in March and thus continued to build on its quest to become a dominant supplier in key parts of the value stack for IoT in both consumer and industrial segments. Basis was somewhat of a surprise acquisition for the chip maker because it was selling its wearable fitness trackers directly to consumers while competing with companies such as Jawbone and Fitbit.