Mobile, Cloud drive technology M&A deals

by Sohini Bagchi    Nov 13, 2013

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Technology M&A activity is finally on the rebound on the third quarter of 2013 and the trend is here to stay, believe experts. According to a new report from Ernst & Young, emerging technologies such as mobility and cloud, followed by social networking, big data analytics and accelerated technology have played key roles in the biggest value deals of the quarter.

According to researchers, a significant technology deal announcements made during the third quarter provides ample reason to expect that the remaining months of 2013 will be equally optimistic as more companies will seek to close deals before year-end. They believe that the increase in the deal momentum is expected to spill over into 2014 and drive higher technology deal volumes.

The mega trends

The rising trend in technology divestitures in the third quarter has significant deal momentum as EY analysts note that the aggregate disclosed deal value of $71.2 billionrepresented an increase of 152% year-on-year and 113% sequentially quarter on quarter.

Joe Steger, EY’s Global Technology Industry Transaction Advisory Services leader believes that transformative technology megatrends of mobile, social, cloud, big data analytics and accelerated technology adaptation are reshaping the technology landscape. As a result deal-making confidence is returning to global technology M&A, as evidenced by the record value and renewed volume growth in the third quarter.

Steger believes the rebound confidence can help organizations overcome increased political instability, macroeconomic uncertainty and valuation gaps, and the industry will continue to see steady growth in technology M&A volumes.

Other contributing factors, according to Steger is the continued favorable PE conditions, sector consolidation, rising information security concerns, increasing divestitures and accelerated technology adaptation in specific industries, particularly banking and financial services, health care information technology and advertising and marketing.

A positive outlook

The EY report states 65% of technology executives surveyed in the research expect deal volumes to modestly improve over the next year which will drastically alter the business landscape

A recent report from Pricewaterhousecoopers (PwC) also observes an increase in the number of technology M&A activity levels in the July-September quarter this year, as against the same time last year. Over the three month period, the number of tech transactions grew by 97% on a sequential basis alone with 63 deals completed, when compared to just 32 deals in the second quarter. The average deal value increased to $440 million, up from $253 million in the first quarter and $433 million in the second quarter of this year.

In the first quarter of 2013, PwC analysts found that tech M&As had dropped abysmally to a 4-year low. However, the analyst firm indicated a positive outlook for more robust deal activity in the subsequent quarters. This optimistic outlook reflected in the recent quarter shows that mergers were actually on the increased when compared to actual deals being signed.

That’s a huge uptick from the dismal mood within the industry, observes Rob Fisher, PwC US Technology Industry Deals Leader, who predicts that good times will continue for the tech industry, at least in the coming quarters.

EY too expects moderate growth in technology deal volumes for the next few quarters. Steger states that the emerging technologies - especially smart mobility and cloud – will continue to transform the technology industry landscape, urging technology leaders and innovators across industries to drive technology M&A volumes.