The Internet of Things in M&A: What You Need to Know about the fastest growing sector of the Internet from an Environmental Perspective

By: Kate Gibson

The “Internet of Things” (IoT): If you haven’t heard of it, you are in good company, but a bad position. IoT is everywhere and getting into everything, but according to Forbes, 87% of people haven’t even heard of the Internet of Things “IoT.”

IoT is still only a quiet buzz in the mergers and acquisitions (M&A) world, even though the projections for its growth are in the billions in the next 4 years.  According to the Washington Post, start-ups focusing on the Internet of Things attracted $1.1 billion in investments across 53 deals last year (data from CBInsights, a New York-based venture capital research firm). This represents an 11 percent increase from the previous year.

These start-ups cover a variety of industries, including healthcare sensor technology, energy management and home automation, among others. For instance, Washington-based start-up SmartThings, which produces home sensor kits, raised $12.5 million in early-stage funding in the fall of 2013. In December Orange Chef, a San Francisco-based start-up creating wirelessly enabled food scales, raised a $1.2 million investment round led by Google Ventures.  Headlines of other investments include:

  • Soft Gear Scores Investment from KDDI Open Innovation Fund
  • Internet of Things Technologies Attract $1.6B in Venture Capital Investment in 2014
  • Sequoia Capital Leads $12M in Series A Funding for ‘Smartbulb’ Startup LIFX
  • Covacsis Technologies Raises Venture Capital Funding
  • Internet of Things Gets $150M from Cisco Systems
  • Neura Banks Receives $2M in Funding to Develop Internet of Things Ecosystem
  • SuVolta Raises $10.6 Million in Funding

IoT is already a part of our daily lives, and includes such things as is include as:

  • Infant monitors that provide parents with real-time information about their baby’s breathing, skin temperature, body position, and activity level on their smartphones.
  • A system that fits prescription bottles with a wireless chip to provide services that help people stick with their prescription regimen; from reminder messages, all the way to refill and doctor appointment reminders
  • Smartphones’ range of sensors (Accelerometer, Gyro, Video, Proximity, Compass, GPS, etc.) and connectivity options (Cell, WiFi, Bluetooth, NFC, etc.) allow you have an IoT device in your pocket that can automatically monitor your movements, location, and activities throughout the day
  • Heart monitors and emergency response systems (“help, I’ve fallen and I can’t get up”) are now connected to the internet to help doctors and responders monitor patients in real time.
  • Sensors installed inside manufacturing equipment to monitor when parts have exceeded their designed thresholds, and automatically send reports to owners and manufacturers. Early predictions of equipment malfunctions can be designed, and service maintenance can be automatically scheduled ahead of an actual part failure.

So what, exactly, is IoT?  Gartner Tech Research defines IoT as

 “The network of physical objects that contain embedded technology to communicate and sense or interact with their internal states or the external environment.”

In essence, IoT is the connection of devices, from light bulbs, televisions and power plants, to the internet.  Gartner estimates that by the end of 2016, approximately 6.4 billion objects will be connected digitally, and projects this figure will more than triple by 2020, to a staggering 20.8 billion. It is no surprise then that the well-known M&A publication, The Deal, expects IoT to have a significant effect on driving growth in M&A across all industries. In The Deal’s latest IoT webcast, panelists explored ways in which to capitalize on the relationships and interconnectivity between machines and humans, to improve business and realize operational efficiencies.

During the webcast, one of the discussion participants highlighted the fact that there is an estimated $1 trillion in lost profits for companies each year because of “out of stock” issues. Simply connecting the stock to the internet could significantly reduce the losses by accurately tracking stock movement in real time  The world of IoT is aiding business professionals in solving this problem, helping them reap substantial increased return on investment (ROI) through data automation and robotics. During the same webcast, another panelist pointed to the thousands of sensors that oil and gas companies equip their drill rigs and tank vessels with and how less than an estimated 1% of the data collected is actually being utilized. Digitization and “machine-to-machine” learning is creating new ways to interpret this data, revolutionizing the industry.

In terms of M&A trends, the panelists expect more consolidation within industries as companies are motivated to acquire specific technologies and capabilities to strengthen their individual positions in the market. Likewise, there will be more start-ups to disrupt the status quo with new IoT technology that will require financing. Given the certainty of growth in M&A driven by the IoT, what affect will this have from an environmental perspective and how can you be prepared?

The rapid rise of IoT will create new challenges during due diligence: the familiar environmental issues associated with property acquisition and land development for new and expanding facilities, new or increased manufacturing, chemical usage, plastic and metal fabrication, and waste management.  Nontraditional topics, including robotics and delicate sensor apparatus will require careful due diligence and knowledgeable regulatory and compliance assistance.   Manufacturing start-ups and operations (e.g., environmental reporting, permitting, and worker health and safety programs) as well as pollution prevention and reduction (i.e. sustainability actions and measures).

Existing manufacturers will need additional space and will need to obtain air, water and waste permits; Entrepreneurs will need new space, possibly selecting existing developed workspaces in urban areas to capitalize on the existing infrastructure and culture, while allowing workers to bike, walk or take the train to work, Evaluating Brownfields increases the cost of environmental due diligence and the likelihood of property investigation and remediation.  Moreover, increased manufacturing activities will consume energy and raw materials, which will require tracking and reporting. A simple search of the EPA’s database of regulated facilities, using the NAICS code for IoT related industries (a specific NAICS code has not been developed), almost all IoT companies would be subject to the hazardous waste regulations, over a third would be subject to air permitting and chemical tracking and reporting regulations and 15 percent would be subject to the water permitting and reporting.  New electronic devices will replace old, obsolete or less attractive devices, the environmentally regulated components (e.g., metal, plastic, batteries and circuit boards), used or regulated oil, and batteries, will need to be recycled or disposed of.  Finally, with more devices connected to the internet, additional data centers will be required that will result in increased construction and acquisition costs, and additional environmental reporting.

In a typical environmental evaluation of a startup manufacturer, we often identify deficiencies that may include:

  • The company has grown quickly and has not realized that they are subject to environmental, health and safety regulations.
  • Operations may be missing required permits or authorizations
  • Companies begin to see increased inspections and enforcement by regulatory agencies, notices of violations and associated fees

Dealmakers will want to consult with reputable environmental consultants to assist them at every point of the merger or acquisition process; from Phase Is to permitting, reporting, and evaluation of the environmental impact of the management, recycling, and disposal of electronic equipment and other connectivity-related devices.

For more information on how we can help you with your environmental due diligence evaluations,  environmental, health and safety (EHS) programs waste minimization and management programs, sustainability strategies, EHS compliance evaluations, please contact Kate Gibson.

Kate Gibson is an experienced environmental scientist with expertise in environmental, health and safety regulatory compliance, environmental due diligence, insurance, and site remediation. For over 26 years, she has managed and conducted regulatory environmental compliance audits and multi-site environmental due diligence projects. Kate has over 20 years of experience in supporting insurance companies and claimants and in conducting site investigation and remediation projects…
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