The aggregate value of all disclosed value deals grew 58 per cent year-on-year to USD36.4b, according to Ernst & Young’s Global technology M&A update: January – March 2013.
Deal volume fell 12 per cent YOY and five per cent compared with the previous quarter to 661 deals.
Aggregate disclosed value would have fallen by 48 per cent if not for a single announced technology transaction valued at USD24.4b (Silver Lake Partners and Dell as announced on 5 February 2013).
However, even the large deal values reflected the profound challenges of transforming a strong, well-established company to align with the five disruptive innovation "megatrends" – smart mobility, cloud computing, social networking, big data analytics and accelerated adaptation. The report found that these megatrends influenced the microcosm of global technology M&As in Q113, as companies competed for market share and key technologies.
Corporate and private equity (PE) volume declined 12 per cent and 13 per cent YOY, respectively. However, PE volume increased 31 per cent compared with the previous quarter to 46 deals, while corporate declined for the second consecutive quarter, by seven per cent to 615 deals.
Joe Steger, Ernst & Young’s global technology industry, transaction advisory services leader, says: "Macroeconomic pressures continued to hold down global technology M&A activity in Q113. We see gradual improvement in macroeconomic uncertainty and a near-term narrowing of valuation gaps as positive signs. However, there is still a lack of confidence around doing large deals in the current economic conditions."
The report identifies the following deal drivers:
• Mobile apps drive many small deals: There were nearly 60 deals in Q113 for mobile applications or related development technology. Most were small or had non-disclosed values. These deals typically involved software that gathers users’ reviews on a topic (food, restaurants, movies, travel destinations, etc), then analyses the content and makes recommendations to others, or both.
• Average deal value falls sharply: Concerns over conducting large transformative deals dominated the M&A landscape in Q113. Excluding the announced deal to take Dell private valued at USD24.4bn, average value would be USD103m, down 36 per cent YOY and 47 per cent respectively.
• Megatrends act together to transform industries: Social-cloud and big data analytics technologies began acting together to transform entire industries. For example, Q113 saw dozens of deals for mobile apps that generate social-network-based recommendations for users. In the background there were many deals for technologies to help network operators manage better the associated data traffic deluge. In the middle were e-payment or advertising and marketing deals. Sprinkled throughout were deals for big data analytics technologies to improve the accuracy of recommendations, the optimization of advertising and marketing campaigns and the efficiency of data networks.
Although cross-border deal volume declined eight per cent YOY to 216 deals in Q113 (from 236 in Q112), it has been falling at roughly the same pace as in-border volume. But at USD3.2bn, cross-border aggregate value plunged 71 per cent YOY to its lowest level since Q1’09. And at USD65m per deal, cross-border average value fell 68 per cent YOY in Q113 from USD204m in Q112. Both values fell far faster than their all-deal equivalents.
Driven by the largest announced transaction in Q113, buyers in the Americas acquired an even greater-than-usual share of global aggregate value in Q113. Excluding that deal, America’s volume and aggregate value declined YOY, but the region’s buyers still acquired the majority of global transaction volume and value. The cloud/software as a service (SaaS) megatrend was the biggest deal driver, but also driving significant deals were e-payment processing, social networking, big data analytics, smart mobility and healthcare information technology.
While macroeconomic uncertainty will continue for the foreseeable future, there are signs of gradual improvement. Strong stock performance so far in 2013 suggests confidence in economic improvement.
An overwhelming majority of technology M&A growth will continue to be captured by technology products and services related to the five transformative technology megatrends. Technology and non-technology companies are being driven to buy companies in these megatrends to help transform themselves to take advantage of growth opportunities. M&A growth in legacy products and services is virtually non-existent or negative.
"Gradually improving macroeconomic conditions, improved confidence, increased stock market valuations and the need for companies to respond to the transformative impact of the five megatrends – smart mobility, cloud/SaaS, social networking, big data analytics and accelerated adaptation, all point to a steady, gradual increase in technology M&A activity over the next several quarters," says Steger.
