A small software company starting up today can view its small size not its weakness but as a very real strength. As an analogy, let others build the roads and freeways (the platforms that require all the investment) and simply use them to get to your next destination.
A larger merged company can operate with a bigger footprint, call on additional internal expertise and skills and is by definition more resilient to economic cycles by being diversified across several industries.
All businesses reach a point in their evolution where new product and service offerings become critical for continued growth and success. The enabler for growth in a product company is a deliberate innovation process that considers product, business model and service innovations, and is funded and measured appropriately.