Tech M&A Deals Hit An All-Time High
Global tech mergers and acquisitions (M&A) have reached its peak this year, a level not seen since the dotcom era. These tech M&A deals are centered around online and mobile payments, social networking, gaming and e-commerce in recent times, say experts.
According to an M&A Leaders Survey, technology dealmakers are enjoying their most revved-up year since before the financial crisis, expect the momentum to continue into 2015. The survey, issued jointly by Morrison & Foerster and tech market intelligence firm 451 Research, reports that 84 percent of tech executives predict that M&A activity will either maintain its current high level or increase during the next six months. Global tech M&A spending for the first nine months of 2014 was running higher than the same periods for 2012 and 2013 combined, the survey notes.
Another latest Ernst & Young study also sees similar trends and attributes this development to the desire to acquire disruptive technology, increased competition and an uncertain economy.
While the Ernst & Young report shows that tech M&A have been centered online, mobile and other disruptive technologies, Morrison & Foerster’s sees a more balanced approach in the deals.
“Deal flow has been strong among traditional technology segments such as semiconductors, IT, and enterprise software, as well as in mobile apps, cloud computing, gaming, cybersecurity, social media, and ecommerce,” said Robert Townsend, co-chair of Morrison & Foerster’s Global M&A Practice Group, who has led a number of recent high-profile transactions on behalf of Intel, SoftBank, and other tech leaders. “Despite some caution over anticipated interest rate changes, the results of the survey illustrate a healthy outlook for deal activity heading into the first quarter of 2015,” he added.
However, some speed bumps could loom ahead. Forty-three percent of respondents predict that an increase in interest rates in 2015 would result in a slowdown in tech M&A activity. The survey also indicates a few potential challenges to tech M&A in the months ahead, but not enough to seriously curtail deal volume, in the view of survey respondents.
According to the Morrison & Foerster study, After nearly a year of torrid transaction activity, only 16 percent of survey respondents anticipate any slowdown in the next six months. “Companies’ earnings are still strong [and] strategic acquirers still have cash and confidence,” one respondent succinctly put it. However, a number of respondents expect a change of focus, including toward “larger and more strategic deals rather than talent and ‘bolt-on’ acquisitions.”
The percentage of respondents forecasting a decline in M&A valuations for private companies tripled from the spring 2014 survey, increasing from 11 percent to 34 percent. That’s the biggest downturn in sentiment toward valuations that the M&A Leaders Survey has reported over the past three years. The relative concern on this front comes as an unprecedented number of startups have raised private market funding at valuations north of $1 billion, and in the wake of an IPO wave that crested with Alibaba’s record-breaker. Both trends seem unsustainable to many participants.
Historically, tech M&A was driven by major vendors like Hewlett-Packard, Oracle and IBM trying to expand their reach by acquiring companies to consolidate and build on established tech product families, Jeff Liu, Global Technology Industry Transaction Advisory Services leader at EY mentioned in the report, adding that consolidation involves coporations needing to catch up in a way that they are not able to do fast enough originally.”
The aggregate global value of all publicly disclosed-value deals set a new post-dotcom era quarterly high of US$73.7 billion [b], up 41 percent sequentially and 4 percent year over year. At 923 deals in total, overall volume also set a record for any quarter since 2000, rising 6 percent sequentially and 31 percent year over year. Corporations, as opposed to private equity deals, continue to drive the growth, increasing aggregate value 40 percent sequentially and 9 percent year over year to $65.3 billion.
EA says there are five “megatrends” driving tech M&A: smart mobility, cloud computing, social networking, big data analytics and what it calls accelerated technology adaptation, defined as technology companies rapidly adapting to the needs of specific industries and other industries rapidly adapting to the evolving possibilities that technology enables.
Experts see a strong technology M&A outlook. As the E&Y survey shows about 80 percent of respondents expected some sort of M&A to take place over the next four quarters, an all-time high for such polls. This should translate into the current level of tech M&A rising by 25 percent.
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