10 Business Trends that will drive M&A for Software Businesses in 2024

One of the areas of growth that has been on the rise in our ecosystem as been M&A. At the start of this year, when I was thinking through my thesis for the year ahead, it was very clear that M&A would play a significant role.

Here are the 10 trends we have identified which will drive M&A in the startup and scale up ecosystem. These trends include:

1. Challenging Fundraising Environment: In a challenging fundraising environment, where securing capital becomes more difficult, companies may turn to mergers and acquisitions as an alternative strategy. This is because M&A can provide access to additional resources, technologies, and markets without relying solely on external funding sources. By combining forces with another company, organisations can strengthen their position and increase their chances of survival and growth, even in a tough fundraising landscape.
2. Technological Innovation: Companies are seeking to enhance their technological capabilities, allowing them to streamline processes, improve customer experiences, and stay ahead of competitors. When companies see aligned opportunities and technology innovation in potential targets, acquisition opportunities will be created.
3. Expansion and Diversification: Companies are looking to expand their product and service offerings, as well as to diversify their business models to increase revenue and reduce risks. With growth at all costs via fundraising off the table for now, this will become a primary driver for executives.
4. Cost Savings and Business Efficiencies: Companies are now seeking to optimize their operations, reduce costs, and improve overall business efficiencies. By acquiring or being acquired by complimentary compnies, this creates an opportunity to remove overhead costs and improve efficiencies for companies.
5. Strategic Partnerships: Companies are looking to form strategic partnerships that can help them grow and achieve their goals more effectively. This allows complimentary companies to leverage of 10’s of million in infrastructure and goodwill to create additional revenue oppportunities.
6. Downward Pressure on Software Prices In 2024, the software industry is experiencing downward pressure on prices due to various factors. New players' commoditisation of software solutions has intensified competition, driving down prices.
7. New Players Commoditising Solutions The rise of new players in the software market driven by AI, low and no-code solutions is already impacting the software ecosystem. For example, 3 years ago, there were only a few players in global chatbot solutions. Now, they are everywhere! This trend has led to a shift in the industry, with companies focusing on differentiating their offerings through added value, customisation, and superior customer service.
8. Rising Customer Acquisition Costs As competition in the software market intensifies, customer acquisition costs have risen significantly. With the remains of the competition for headcount and drive in salaries higher, many companies nare unable to (due to the above reasons) increase their prices to match the internal rise CAC. Combined with the changes in email rules for providers like Yahoo and Google have made it more challenging to reach their target audience. This will force software companies to explore new marketing channels and strategies to acquire customers effectively, with M&A being one of them.
9. Changes in Email Rules for Yahoo and Google In 2024, Yahoo and Google implemented new email rules to reduce spam and improve user experience. These changes have made it more challenging for software companies to reach potential customers through email marketing. As a result, businesses have had to adapt their marketing strategies, focusing on building relationships with customers through social media, content marketing, and other channels.
10. The Consistent Need for Growth Despite these challenges, the need for growth in the software industry remains consistent. Companies must continue to innovate and adapt to the changing market landscape to maintain their competitive edge. This includes investing in research and development, exploring new markets, and forming strategic partnerships to drive growth and stay ahead of the competition.