Global Technology M&A Update – Technology M&A Surges In Difficult Environment

Five disruptive technology megatrends drove the value of global technology mergers and acquisitions (M&A) up 41% in 2011, while volume increased by 13% — even as the value of global M&A in all industries fell slightly amid economic uncertainty, according to Ernst & Young’s Global technology M&A update, October — December 2011 and year in review.

According to the report, the year’s most notable deal drivers were five technology megatrends: smart mobility, cloud computing, social networking, ‘big data’ analytics and a growing sense of blur, as industry sectors blur together and the technology industry itself disrupts other industries — challenging whether certain companies are pure technology companies or have entered the industries they are disrupting.

In addition, an increasing need for information security is being driven by all five megatrends. These disruptive innovations are remaking the technology industry while enabling transformative change in other industries as well.

2011 technology M&A highlights

  • Megatrends, mega deals: thirty-four deals rose above $1 billion in 2011 — including two above $10 billion — compared with 26 in 2010 and 19 in 2009.
  • The “social-mobile-cloud” phenomenon dominated deal-driving trends in 2011. We call this a phenomenon because the trends reinforced and accelerated each other over the course of the year.
  • Business intelligence and analytics emerged as a major deal-driver in 2011, powered in part by the social-mobile-cloud phenomenon.
  • Aggregate deal value (for deals with disclosed values) reached $168 billion (up from $119 billion in 2010).
  • Private equity (PE) deal values soared 67% to $33 billion.
  • Full-year deal volume was up 13% to 3,006 deals.
  • Average value per deal (for deals with disclosed value) was $167 million, up 27% over 2010 and the highest annual average deal value in the five-year history of the report.

Fourth quarter 2011 technology M&A highlights

  • Deal-making growth slowed in the last quarter, showing that technology is not fully immune to the global macroeconomic uncertainty.
  • At 676 deals, deal volume declined for the third consecutive quarter. It’s down 4% YOY, 11% sequentially and 15% since peaking in the first quarter of 2011 at 794 deals.
  • Aggregate announced deal value was $32.2 billion in 4Q11, up 7% YOY but down 43% from $56.4 billion in 3Q11.
  • Cloud computing, smart mobility and social networking continued to dominate deal-driving trends in 4Q11.
  • Business intelligence and analytics increased again across a spectrum of industry-specific uses, though with a strong concentration in online advertising and marketing.

Deal-driving trends, big and small

Established companies made major consolidation plays and placed big bets on the five megatrends in 2011. Software as a service (SaaS) deals rose to prominence in the fourth quarter: two SaaS deals topped $1 billion — the first time any SaaS deal topped that mark.

At the same time, a multitude of smaller deals demonstrated the strategic importance of certain technologies, especially social networking and information security, but also health care information technology (HIT), online and mobile games and advertising and 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 $21.2 billion, 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.

Cross-border growth

For the year, cross-border deals grew in aggregate value at about the same rate as in-border deals; they increased faster in deal volume, at 19% compared with 10% for in-border. The year seemed on track for even greater cross-border growth until macroeconomic uncertainty returned in the second half of the year, appearing to damp down deal flow across borders more than in-country. Our report includes region-specific snapshots for the Americas, Asia-Pacific and EMEA (Europe, the Middle East and Africa) regions.

2012 outlook mixed, but strong in the long run

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,” says Joe Steger, Global Technology Industry Transaction Advisory Services Leader at Ernst & Young. “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.