Global technology M&A update: 3Q12 highlights

View from the top: 3Q 2012 earnings season

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A weakened global economy and low macroeconomic confidence continued to drive further declines in technology M&A in 3Q12. 

“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.”

However, technology companies continued to strike smaller, more strategic deals driven by five disruptive megatrends. These megatrends are:

  • Smart mobility
  • Cloud computing
  • Social networking
  • Big data analytics
  • A growing sense of blur

The study also found that the volume and value of cloud computing 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.

3Q12 highlights

  • Aggregate value of all disclosed-value deals falls 52% year-over-year (YOY) and 15% sequentially to $28.2 billion
  • Deal volume inches up 2% YOY and 3% sequentially to 752 deals
  • Private equity (PE) deal value declines 61% YOY to $4.9 billion, but is up 8% sequentially; PE volume declines 22% YOY and 2% sequentially
  • Cloud computing deal-making focuses on the data center; mobile/e-payment technologies and health care IT (HIT) remain significant deal drivers, along with social networking and big data analytics
  • Cross-border (CB) deal value declines 40% sequentially to $10.5 billion (37% of all aggregate value); US deal-makers purchase 56% of CB value after falling to 23% in 2Q12

Large infrastructure deals give way to more nuanced strategic plays

Sub-trends are gaining traction as data center performance, mobile/e-payments and HIT, along with the five megatrends continued to drive strategic deals in 3Q12.

For example, deals related to the rapid evolution of data center technology necessary to meet the demands of cloud computing, smart mobility and big data analytics surged ahead, in spite of broader macroeconomic challenges.

And while the value of social networking and patent deals declined from 2Q12, buyers continued to target technologies that add social functions to enterprise software and intellectual property (IP) associated with the five megatrends.

There was a variety of interesting deals blurring across the communications equipment (CE), computers, peripherals and electronics (CPE), semiconductor and software sectors that all shared one thing in common: technology for boosting performance in data centers.

Cross-border (CB) deal value declines, repeating 2011 pattern

CB deal value fell 40% sequentially in 3Q12 to US$10.5b, after surging 58% sequentially to US$17.4b in 2Q12. CB volume was also down though only by one deal YOY and 2% sequentially.

This mirrors a pattern in 2011, when macroeconomic uncertainty appeared to dampen CB deals more than in-border (IB) in the second half of the year despite a CB volume and value spike in the first half.

Regional snapshot: US acquired value grows; Brazil enters ‘Top 10’

America’s deal-makers captured a sequentially smaller share of global deal volume for the second consecutive quarter but a significantly larger share of global value.

Key 3Q12 deal drivers included cloud/SaaS, smart mobility, social networking and big data, as well as health care and payment technologies — and nearly US$1b in disclosed-value distributor deals. In aggregate, the US captured nine of the top 10 global technology deals of the quarter (based on disclosed value) – the tenth went to Brazil.

Outlook: M&A is constrained by conservatism

Cloud computing 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,” says Joe Steger Global Technology Industry – Transaction Advisory Services Leader at EY.