Aggregate deal value of global technology mergers and acquisitions fell 12% year-on-year to $25.1 billion in the first quarter of 2012. This was only half the value decline of M&A in all industries, as ongoing economic uncertainty continues to take its toll on global deal-making. Private equity deal values for technology, meanwhile, climbed 171% year-over-year in the first quarter of 2012, despite falling significantly in all other industries, according to the latest Ernst & Young’s Global technology M&A update.
The total unit volume of transactions in Q1 was 756 up just 1% from 748 in 2011. Quarterly deal volume appears to have reached a plateau after two years of strong growth in 2009 and 2010 — for the last five quarters the number of deals has ranged from a low of 722 to a high of 756.
“Even though technology M&A activity is down year over year, it’s doing a lot better than M&A in other industries. During the first quarter of 2012, the same disruptive megatrends that have been fueling global technology M&A since 2009 are now sustaining technology M&A against the continuing macroeconomic pressures that are holding back other industries. And the long-term outlook for technology M&A remains positive because those megatrends represent the driving force of disruptive innovation that is revitalizing and reshaping the technology industry,” said Joe Steger, Global Technology Industry Transaction Advisory Services Leader at Ernst & Young.
According to Mr. Steger there are five long-term “megatrends” that are generating disruptive innovation in technology and leading to technology-enabled innovation in other industries. They 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. In addition, all five megatrends are driving increased information security requirements.
Online video, SaaS deals surge
Though the Q1 technology report details many influential deal-driving factors, the biggest increases in transaction volume came from deals targeting online video technology and SaaS companies. These also generated the largest deals of Q1 by dollar value. These were a $5 billion transaction targeting technology that can relay video to mobile devices and a $2 billion deal targeting a provider of workforce management SaaS. In China, meanwhile, the country’s largest video website announced a $1.1 billion agreement to acquire its chief rival.
At the same time, a multitude of smaller transactions demonstrated that both online video and SaaS deal-driving trends have widespread strength, according to the report. Similar deal volume strength was seen in mobile applications, health care information technology, advertising/ marketing technologies, patents, social networking and “big data” analytics deals.
Despite a typical fourth-to-first-quarter dip, the report shows that the year over year value of disclosed private equity deals soared 171% to $5.8 billion, mostly in three big-ticket deals. This continues a three-year private equity growth trend.
The increasing reliance on technology of companies throughout the economy, combined with the developing maturity of technology companies themselves, is attracting more private equity firms to technology transactions. Increasing private equity activity is changing the global technology M&A landscape by increasing the competition for deals and by providing better exit opportunities for corporate divestiture of non-core assets, according to the report.
“The decline in first quarter deal value confirms our expectation that macroeconomic pressures will hold global technology M&A activity to flat or slow growth in 2012,” said Mr. Steger. “But the fact that technology M&A is off to a much stronger start than in most other industries demonstrates once again that ‘social-mobile-cloud,’ ‘big data’ and ‘blur’ are driving strategic transactions and enabling innovation throughout the global economy. And over the long-term, M&A growth will remain a relatively safe bet for the technology industry because of these megatrends,” added Mr. Steger.