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Global technology M&A update - 1Q12 highlights - Technology M&A outpaces overall deal environment - EY - Global

Global technology M&A update: 1Q12 highlights

Technology M&A outpaces overall deal environment

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"The same disruptive megatrends that have fueled increasing global technology M&A activity since 2009 are now sustaining technology M&A against the continuing macroeconomic pressures holding back other industries in the first quarter of 2012."

Joe Steger
Global Technology Transaction Advisory Services Leader,

As the ongoing global economic malaise held back mergers and acquisitions (M&A) in all industries to the lowest first-quarter level since 2003, five disruptive technology megatrends presented an opposing force that held global technology M&A to a much smaller decline, according to EY's Global technology M&A update, January - March 2012.

In addition, all five megatrends are driving increased information security requirements.

First quarter 2012 technology M&A highlights

  • Aggregate value of all disclosed-value deals fell 12% year-over-year (YOY) to $25.1 billion
  • Deal volume increased 1% YOY to 756 deals
  • Video (especially mobile) and software as a service (SaaS) deals surged
  • Private equity (PE) deal value soared 171% YOY to $5.8 billion
  • Americas buyers captured 75% of global volume and 87% of disclosed value
  • Asia-Pacific, India and Japan deal-makers focused on out-of-region targets, especially in the US
  • EMEA (Europe, the Middle East and Africa) companies were heavily targeted by US buyers

According to the report, the 12% YOY decline was just half that seen for M&A in all industries. However, the report suggests deal volume may have reached a plateau after two years of strong growth in 2009 and 2010: for the last five quarters, the number of deals ranged between a low of 722 and a high of 756.

Online video, SaaS deals surge

For 1Q12, the biggest increases in transaction volume and value came from deals targeting online video technology and SaaS companies. A US$5 billion transaction targeting technology that can relay video to mobile devices was the largest dollar-value deal of the quarter, and a US$2 billion deal targeting a provider of workforce management SaaS was second.

In China, meanwhile, the country's largest video website announced a $1.1 billion agreement to acquire its chief rival.

Both trends also drove many smaller deals. Similar deal volume strength was seen for targets in mobile applications, health care information technology, advertising/marketing technologies, patents, social networking and "big data" analytics.

Patents, social networking deals change character

Another trend, the increasing importance of intellectual property (IP), caused transactions targeting patents to spur deals across many sectors, after emerging in 2011 as a series of isolated big-ticket "events." Social networking transactions also appeared to change in character, as post-IPO companies focused on acquiring strategic mobile technologies instead of talent acquisitions or geographic expansion, as they previously did.

Rise of PE changes M&A landscape

Although PE disclosed value experienced a sequential dip (which is normal in fourth-to-first-quarter transitions), the 171% YOY value increase for 1Q12 continues a multi-year PE growth trend. Several factors attracting more PE activity to technology M&A are revealed in our report. As such, PE deal-making is increasing competition for deals and providing better exit opportunities for corporate divestiture of non-core assets.

2012 technology M&A outlook remains optimistic

"This decline in first quarter value confirms our expectation that macroeconomic pressures will hold global technology M&A activity to flat or slow growth in 2012," says Steger.

"But long-term, M&A growth a relatively safe bet for the technology industry because of the multiple disruptive technology megatrends occurring now and driven by smart mobility, cloud computing, social networking, big data and industry blur. They represent an irresistible force of disruptive innovation, which is remaking the technology industry while enabling transformative change in other industries as well."

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