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Global technology M&A value falls 52% YOY on weakened global economy
- Deal volume up marginally on Q2
By: PR Newswire
Nov. 12, 2012 11:22 AM
NEW YORK, Nov. 12, 2012 /PRNewswire/ -- The aggregate value of technology mergers & acquisitions (M&A) fell 52% year-on-year (YOY) and 15% compared with the previous quarter to US$28.2b in the third quarter of 2012, according to Ernst & Young's Global technology M&A update: July-September 2012 report.
Large M&A transactions gave way to smaller, more strategic deals, as companies proceeded cautiously in light of continued, widespread macroeconomic uncertainty. In particular, the total volume of announced deals in 3Q12 was 752, up 2% YOY and 3% sequentially (on 2Q12). Strategic transactions continue to be driven by five long-term megatrends that are generating disruptive innovation in technology and leading to technology-enabled innovation in other industries. These megatrends are smart mobility, cloud computing, social networking, big data analytics and a growing sense of blur and convergence as technology sectors come together and the technology industry enters other industries as enabling innovation.
Notably, corporate and private equity (PE) deal volume moved in opposite directions: corporate was up 4% both YOY and sequentially to 701 deals in 3Q12, while PE declined 22% YOY and 2% sequentially to 51 deals in 3Q12.
The study also found that the volume and value of cloud/software as a service (SaaS) deals remained significantly higher than any other deal driver in the third quarter. Mobile/e-payment technologies surged in value during 3Q12, and deal value surged again for health care information technology (HIT) after falling in 2Q12. Social networking deals fell in value, but held steady in volume.
Joe Steger, Global Technology Industry, Transaction Advisory Services Leader at Ernst & Young, says:
"Once again, the macroeconomic environment is challenging technology M&A. But unlike after the global downturn that began in late 2007, when deal values and volume both fell hard and fast, volume continues to grow — at least a little."
"This is a real testament to the spreading strength of the 'social-mobile-cloud' and big data analytics megatrends. These are major forces and they are still driving technology company transactions. So, we'll continue to see many smaller strategic technology deals, and caution around executing large transformative deals until macroeconomic conditions and confidence improve. But the long-term outlook for global technology M&A remains strong."
Large infrastructure deals give way to more nuanced strategic plays
Cross-border deal value declines, repeating 2011 pattern
Regional snapshot: US acquired value grows; Brazil enters 'Top 10'
Looking ahead: M&A valuations expected to decline, but turnaround is possible
Technology respondents say there is a widening gap between buyers and sellers in terms of M&A valuations. Forty-five percent of technology company respondents to the October 2012 survey expect M&A valuations to decline over the next 12 months compared with 21% in the April 2012 survey. In April, 40% said valuations would increase but only 28% believed so in October. And overall, in terms of economic confidence, the technology view is more pessimistic than that of all-industry respondents.
This said, there are a number of factors that could spark a turnaround in the technology M&A landscape. For example, cloud/SaaS deals were strong in 3Q12 and could fuel additional M&A; PE firms still have "dry powder" — unused funds that they have to invest soon or potentially give back to their investors; and smart mobile device makers now range from disruptive leaders to weakening providers in search of turnarounds — and many in between looking for a lever to success.
"While most of the ingredients necessary for a deal recovery remain in place – plentiful cash reserves, adequate credit availability and transformative technologies – one element remains elusive: economic confidence. Without it, the M&A market will continue to be constrained by conservatism. This is especially true for larger deals," concludes Steger.
About the reports
Capital Confidence Barometer – Technology Industry (Outlook October 2012 - April 2013) is based on a regular survey of senior executives from large companies around the world, conducted on a biannual basis by the Economist Intelligence Unit (EIU) on behalf of Ernst & Young. The survey provides a snapshot of corporate confidence in the economic outlook, and it identifies boardroom trends and practices the way companies manage their capital agenda. The full report is available at www.ey.com.
Ernst & Young's Global Technology Center
About Ernst & Young
Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com.
This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.
SOURCE Ernst & Young
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