Technology companies hit acquisition trail to target SMEs

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Technology companies which specialise in supplying small businesses are becoming hot acquisition targets for larger rivals seeking to gain a foothold in the growing SME market, according to Clearwater Corporate Finance.

Major IT and telecoms suppliers who traditionally have targeted large business customers are increasingly turning their attentions to the UK’s 4.3 million SMEs, says Clearwater. Often the easiest way to break into this market is to acquire an existing player.

Emma Leathley, technology analyst at Clearwater says: “For applications like ERP and CRM, the big company market is drying up, as large organisations have already adopted these technologies whereas small businesses are just beginning to see the value in them.

“However suppliers who are accustomed to the big company culture find the SME market requires a different approach, both in terms of the sales and marketing process and the products themselves. Instead of dealing with the chief information officer, they are more likely to be dealing with entrepreneurs who have no specialist knowledge and are much tougher sales targets.

“Often it is easier to buy up companies which already have a strong presence in this market, rather than try to develop the products and skills in house and risk letting competitors steal a march on them.”

BT is one of the companies which has seen the potential in small businesses. In April 2006 it bought Dabs.com for £30 million to strengthen its IT offering for SMEs. In November the same year Phoenix IT Group plc spent over £30 million buying Servo Computer Services to expand its presence in the small business market. In the same month Sage Group plc paid £20 million for Protx Group, an online debit and credit payment services provider, to broaden its range of services to its SME base.

Clearwater has advised construction software specialist Tekton Group on a number of acquisitions, including that of EVision, a product focused at the SME sector and which is now achieving returns to rival those of Tekton’s corporate products, according to Clearwater analyst Emma Leathley.

She says: “The SME market is now a key driver of growth within the technology sector. While the trend has been most evident in applications such as ERP and CRM, we believe the same thing will happen in other areas of technology.

“The major suppliers are keen not to miss out and are beginning to hit the acquisition trail. The result is likely to be a wave of consolidation as they snap up smaller software vendors, IT service providers and other technology companies supplying the lucrative SME sector.”