Traditional Companies Meet with Technology Companies

In order to keep up with the new world, the first method used by companies that want to develop their classic products and services is to support and/or own an initiative working on technology and the digital world. Although the agreements made in this direction seem to be a solution-oriented approach for companies in general, they also contain some pitfalls that can affect companies deeply.

“It is better to have a new technology than to be torn apart by it.”

“There is no doubt that it is extremely challenging for companies without technology-related products or services to make technology-focused investments,” Anthony Armstrong, co-head of technology mergers and acquisitions at Morgan Stanley, said in a speech. And added; "It's better to get a disruptive technology than to be torn apart by that technology."

It would not be wrong to say that companies showed a more aggressive attitude in this regard until 3-4 years ago. Companies that are not generally involved in the technology sector made acquisitions for a total of 125 billion dollars in 2016. In 2010, this figure was 20 billion dollars.

The tendency of companies to be hasty and insistent on this issue should not be seen as a very wrong strategy. However, the extraordinary speed of technological developments and the shortening of adaptation processes in parallel are a very serious threat to traditional companies.

Many companies that have existed for decades and do not have technology at the center of their business models are trying to lock in future growth by relying more on the courage of young tech companies. However, traditional firms need to consider the unique features and challenges of technology deals. That's why it's so important for them to make a strategic plan for their digital agenda and how they can achieve it. Critical decisions such as considering the various factors that can affect the terms of a deal, including cyber attacks, and paying attention to the value that the technologists and leaders of the venture to bring to their new organization can be considered important parts of the strategy.

Making the Right Purchase

The thoughts of successful strategist Alastair Rimmer can shed light on the issue at this point: “Non-tech companies want to own startups for different reasons. Accordingly, they may want to develop their business or offer entirely new digitally enabled services. It may also be a smart choice to buy a company they see as a potential competitor. The problem is that dealmakers can only evaluate emerging technologies. Hence, they have limited background and knowledge to move on. Moreover, while traditional companies have come up with a plan for how new technologies can improve their businesses, many of these plans are relatively new and still in development.”

After all, technology should not be a part of companies. It should be an element that needs to be integrated everywhere. Evaluating the agreements to be made and the decisions to be made for companies within this framework can turn technology from being a threat into a great opportunity.

At this point, we can cite “McDonalds” as an example.

McDonalds is acquiring a technology company working on machine learning in order to provide a different experience to its customers.

The world's largest restaurant chain is preparing to pay more than $300 million to Dynamic Yield Ltd. Thus, McDonalds restaurants are digitizing their menu cards. This new technology enables the creation of special deals/menus for restaurants and/or customers.

Following this news, McDonalds shares rose 1.7% to $189, a two-month high.

CEO Steve Easterbrook, who became chairman of the board in 2015, has been working on giving technology a huge place in its dynamics with applications such as order kiosks and digital menu boards to increase sales and help McDonalds stand out from their competitors. In short, we can say that McDonalds has taken a big step towards realizing its goals with such a purchase.

“Technology is a critical element of our rapid growth plan,” Easterbrook said. “This agreement clearly demonstrates the role technology will play in the future of McDonalds and our ambitions to implement our vision to create more personalized experiences for our customers.”

See you in different reviews and valuations for traditional companies to meet with technology companies…