Deals expected to increase in 2011 as companies and private equity pursue growth and innovations through technology transactions
The number of global technology mergers and acquisitions (M&A) increased 27% year over year in the fourth quarter, capping a calendar year in which the full number of companies and private equity (PE) deals (2,658) increased 41% and total deal value (US$119 billion) increased 26% over 2009. At the same time, a decrease in the concentration of M&A value in the year’s top 10 deals (to 28% of all disclosed valued from 42% in 2009) suggests that deal-making strength and confidence are spreading more widely throughout the technology industry and that small deals have increased as companies look to take advantage of the key technology trends, according to Ernst & Young’s Global Technology M&A update, October – December 2010 and year in review, available at http://www.ey.com/GL/en/Industries/Technology.
The most notable deal drivers of 2010 continue to be the three “megatrends: smart mobility (the movement toward network-enabled mobile devices for business and personal use), smart everything (the increasing value of information technology as a component of all products and services) and cross-industry blur (as technology enables innovation in other industries). However, 2010 also saw the rise of information security, cloud computing and social networking as growing technology trends that also drove dozens, if not hundreds, of deals. Likewise, cross-border expansion and the pursuit of strategic technologies to satisfy business growth objectives were growing business trends that drove deals.
“In 2010, technology M&A was defined by the way in which three technology trends — smart mobility, social networking and cloud computing — were embraced by the global economy at large. This is propelling globalization through cross-border deals, and the convergence of technology platforms with other industries through cross-industry deal activity,” says Joe Steger, Global and Americas Transaction Advisory Services Leader, Technology at Ernst & Young. Of note, the effect of technology enabling innovation in all industries was evidenced by the increase in technology transaction value purchased by non-technology companies from US$7.5 billion in 2009 (8% of 2009 deal value) to US$17.3 billion in 2010 (15% of 2010 deal value).
“All these trends are expected to accelerate, suggesting continued M&A growth in the sector in 2011,” Steger adds.
More strategic deals
Despite strong growth overall in technology M&A for 2010, growth fluctuated from quarter to quarter — alternating between double-digit growth and zero, or very limited, growth. Although deal value and deal numbers were up year-over-year, average deal value of US$131 million was down 10% from the 2009 average (US$145 million) because of a large increase in small-sized deals. The pattern of companies making multiple small acquisitions and weaving them together to address strategic business initiatives grew stronger throughout the year.
“In 2010 there was a focus on strategic deals, and in some cases multiple deals in a short period of time, as buyers sought to capitalize on evolving trends and new technologies,” says Steger.
PE makes a comeback
Total announced PE deal value reached US$19.7 billion for 2010, more than double the US$9.8 billion in deal value announced in 2009, and 41% higher than the US$14 billion in deal value announced in 2008. Still, 2010 global PE technology deal value was 46% less than the US$36.6 billion in deal value announced in 2007. Similarly, these PE figures represent its resurgence in terms of percent of overall deal value: the 2009 value figure cited was 10% of total value in 2009, whereas the 2010 figure represented 17% of total value in 2010. This is still below the 25% recorded in 2007 — the last year before the global financial downturn.
Cross-border deals bolster growth
The pursuit of growth via international expansion drove both big-ticket deals and — particularly in the internet sector — a multitude of small deals with undisclosed value. Compared with 2009, corporate cross-border deal numbers increased by 56% in 2010 and PE deal numbers increased 55%. For 2010, cross-border corporate technology deals grew to 34% of all deals in the sector, compared with 31% in 2009.
2011 looks promising for continued M&A
Several factors suggest 2011 will see continued growth in global technology M&A, particularly the way in which new waves of technology innovation around smart mobility, cloud computing and social networking are influencing innovation throughout the global economy. In addition, the rapidly growing stockpile of cash on technology companies’ balance sheets gives them the fuel they need to increase deal-making. In aggregate, cash and investments held by the sector’s top 25 companies (as defined in the report) topped the half-trillion-dollar mark by the end of 2010.
However, a significant portion of that cash is held overseas by US companies, which limits its potential use for domestic US M&A.
“Global technology M&A growth will continue in 2011, pushed by truly exciting innovation in smart mobile technology, cloud computing and by the growing cash stockpiles that corporate boards are increasingly challenged to put to good use. We will see buybacks and dividends, and we’ll definitely see continued M&A — both for growth and for seizing strategic technologies,” says Steger.
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About the report
Global Technology M&A update: October – December 2010 and year in review is based on Ernst & Young’s analysis of FactSet Mergerstat data for 2010. FactSet Mergerstat data was last accessed for this fourth quarter report on 5 January 2011. Deal activity and valuations may fluctuate slightly based on the date that the FactSet Mergerstat database is accessed. Only disclosed value deals are used in all value analysis. Full report is available at www.ey.com.
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