Digital Disruption To Spur M&A Deals In 2016
Digital disruption (technology innovation via mobile, social, cloud and big data analytics) is enabling and transforming all areas of business enterprise across industries. M&A is one way for both tech and non-tech companies to keep up with innovation, and 80% of tech executives predict global M&A will thrive in the next 12 months. This is according to the biannual survey of senior executives from global technology companies conducted by EY for the latest Capital Confidence Barometer — Technology, which gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their capital.
Forty-five percent of technology industry executives plan to actively pursue acquisitions in the coming year, which is higher than the past three surveys launched in the same third-quarter period (44% in 2014, 33% in 2013 and 20% in 2012). With a single US$67btech deal already announced in 4Q15, aggregate deal value has already hit another quarterly record.
More than one third (34%) of technology executives are also planning acquisitions outside their own sector. New customer behaviors are cited above all others (46%) in driving technology companies to buy non-tech companies, and new product innovation ranks second (21%), according to the report.
Jeff Liu, Global Technology Industry Leader, Transaction Advisory Services at EY, says, “As the overall M&A market hits its stride, the technology sector has continued to shatter M&A records from one quarter to the next. While digital disruption is not a new story, we have clearly entered a new chapter in its impact on M&A. It is one in which the customer is becoming a more digitally empowered protagonist. Changing customer behavior is driving technology company acquisitions of non-technology companies — and vice versa.”
According to the report, 80% are positive in their economic outlook. More than one third of technology executives surveyed (39%) view today’s global economy as strongly improving and a similar number (41%) view it as improving modestly. Macroeconomic sentiment has swung significantly from last year, when stability (44%) was the rising indicator. Given economic growth in the US and European Union (EU) this year, executives have become less sensitive to daily speculation around such issues as an emerging market slowdown or the potential timing of a US interest rate hike.
However, technology executives also said that the deal process itself is subject to significant cyber risk, according to 91% of those surveyed. Cybersecurity due diligence has become standard practice for more than half of executives (54%).
Almost all executives see the size of their deal pipeline as stable or growing with over one-third now cite R&D and product introductions as their primary focus for organic growth, the study notes.
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