Technology Mergers and Acquisitions Surge in 2011
Aggregate deal value of global technology mergers and acquisitions (M&A) surged 41% in 2011, even as the value of global M&A in all industries fell slightly amid economic uncertainty.
Global Technology M&A Update, October-December 2011 and year in review is based on Ernst & Young’s analysis of Capital IQ and FactSet Mergerstat data for 2010 and 2011. Deal activity and valuations may fluctuate slightly based on the date that the database is accessed. Only disclosed value deals are used in all value analysis.
Aggregate deal value (for deals with disclosed values) reached US$167.7b in 2011 (up from US$119b in 2010), even though fourth quarter value declined sequentially and was up only 7% year-on-year (YOY). Private equity (PE) deal values soared 67% during the year and bucked the trend of declining second-half growth, according to Ernst & Young’s Global technology M&A update, October – December 2011 and year in review.
The total volume of announced 2011 deals was 3,006 (counting both disclosed- and undisclosed-value deals), up 13% from 2,658 in 2010. However, fourth-quarter volume declined for the third consecutive quarter, to 676 deals (down 4% YOY, 11% sequentially and 15% since peaking in the Q1 2011 at 794 deals). Q4 2011 volume was the lowest quarterly total since the second quarter of 2010, reflecting that global technology deal-making is not immune to the effects of the macroeconomic uncertainty that chilled M&A in other industries.
Joe Steger, Global Technology Transaction Advisory Services Leader at Ernst & Young, says: “The disruptive megatrends of social-mobile-cloud and ‘big data’ analytics have helped fuel a significant rise in global technology M&A activity since 2009, despite a slight pullback due to macroeconomic pressures in late 2011. The same pressures suggest we might be in for slow growth in 2012 — but the long-term outlook for technology M&A remains strong due to ongoing disruptive technology innovation.”
M&A patterns show imprint of five megatrends
The year’s notable deal-making patterns carry the clear imprint of five technology megatrends: smart mobility, cloud computing, social networking, “big data” analytics and cross-sector and cross-industry blur — plus the increased information security needs that come with them all.
Sub-trends within the megatrends depict the irresistible force of disruptive innovation, which is remaking the technology industry while enabling transformative change in other industries as well.
Big trends, big deals
Trends that have been developing for several quarters — or in some cases, even years — yielded a long string of multibillion-dollar deals in 2011. Thirty-four deals topped US$1b in 2011, including eight in the fourth quarter. Established companies made major consolidation plays and placed big bets on smart mobility (including internet and mobile video), cloud computing and business intelligence/analytics.
At the same time, a multitude of smaller deals demonstrated the strategic importance of certain technologies, especially social networking and security, but also healthcare information technology (HIT), online and mobile games and advertising/marketing technologies. There were 100-150 deals in each of these areas in 2011, including many deals that overlapped several of them.
Consolidation and restructuring
Semiconductor consolidation also drove big-ticket deals. Five of the year’s top 10 M&A transactions, worth a combined US$21.2b, involved established semiconductor companies as both the buyer and target. Restructuring deals were announced in many other sectors, especially the communications equipment and computers, peripherals and electronics sectors.
PE continues its comeback
One of the big stories of 2011 was the return of PE deals. Although we did not see any mega-PE deals like before the global financial crisis, PE volume has increased every quarter this year, to a total 2011 volume of 317 deals, or 19% more deals than in 2010. PE deal value for 2011 was US$33b, a 67% increase over the US$19.7b value in 2010. The big-ticket PE deals ran the gamut of technologies from internet to education to HIT.
Cross-border deals grew in aggregate value to US$69.3b in 2011 from US$49.4b in 2010 and increased 19% in deal volume (to 1,077 in 2011 from 907 in 2010). But cross-border deal growth slowed in the last two quarters relative to in-border deals. The year had seemed on track for even greater cross-border growth until macroeconomic uncertainty returned in the second half of the year, appearing to put pressure on cross-border deal flow more than in-country.
The Ernst & Young report includes three regional snapshots. Deal-making in the Americas represented slightly more than half of all 2011 global technology M&A volume, evidence that this region continues to play its traditional technology trendsetting role even as other regions have risen to prominence. Full-year volume and value growth in the Asia-Pacific and Japan region surpassed the global averages, in a year of restructuring in preparation for strategic growth in social, mobile and cloud computing.
In EMEA (Europe, the Middle East and Africa), Europe emerged as a net buyer of cross-border transaction value in 4Q11 for the first time in five quarters, with a particular regional focus on cloud computing and smart mobility.
2012: A slow-growth year?
“Global technology M&A provided a counterpoint to the global macroeconomic malaise prevalent in the second half of 2011, but slowed somewhat in the final quarter,” says Steger.
“Looking ahead, 2012 could be a slow-growth year for global technology M&A, given the return of macroeconomic volatility — and that deal-making has already returned to a strong level over the past two years. In addition, some deal-makers will be focused on the integration challenges involved in the big bets they placed during 2011,” Steger adds.
He concludes: “M&A transactions will likely take a pause in the first quarter 2012. However, the multiple disruptive technology megatrends occurring now and driven by smart mobility, cloud computing, social networking, big data and industry blur make long-term M&A growth a relatively safe bet for the technology industry.”