Global technology M&A update:
The already breathtaking and still accelerating pace of change in technology may be a cliché, but as soon as you wrap your mind around it, it astounds you all over again. That’s the best way to describe global technology M&A in the “blowout” first quarter of 2014, during which multiple big-ticket deals and one megadeal placed strategic bets on the rapidly evolving future of markets and technologies.
It was a quarter of dealmaking dominated by the smart mobility megatrend, and it was a quarter that illuminated just how quickly internet companies expect their sector’s extremely fast-changing future to rush toward us.
The aggregate value of all disclosed-value deals was the highest in 14 years for a first quarter: $66.6 billion, up 83% year-over-year (YOY) and 41% sequentially.
1Q14 deal volume rose 6% sequentially and 15% year-over-year (YOY) to 758 deals, making this the third consecutive quarterly volume increase after three consecutive declines, and the highest level recorded in six years. In addition, private equity (PE) volume increased for the fifth consecutive quarter, up 15% sequentially and 52% YOY.
“I am encouraged by the near record deal volumes in the first quarter of 2014, and that transformational big-ticket deals continued. Both are being driven by the still-increasing acceleration of change based on the five transformative technology megatrends of mobile, social, cloud, big data analytics and accelerated technology adaptation — and the new possibilities they foster, such as the internet of things. But EY’s latest Capital Confidence Barometer survey shows a moderation in the outlook for the global economy, dealmaking and confidence among technology executives. Consequently, I expect technology M&A activity to remain strong in 2014, reflecting ongoing disruption from the five megatrends.”
Global Technology Industry, Transaction Advisory Services Leader, at Ernst & Young LLP
- Aggregate value of all disclosed-value deals is highest in 14 years for a first quarter: $66.6 billion, up 83% year-over-year (YOY) and 41% sequentially.
- Volume rises 15% YOY and 6% sequentially to 758 deals, the highest level we’ve seen in six years.
- Corporate aggregate value skyrockets 394% YOY to $53.6 billion; corporate volume (688 deals) increases for the third consecutive quarter.
- Private equity (PE) deal value is $13 billion, near the top of its typical range; PE volume (70 deals) increases for the fifth consecutive quarter.
- Cross-border (CB) deal value was $15.6 billion, nearly five times higher YOY. But it was a low proportion (23%) of overall aggregate value. At 231 deals, CB volume was up 7% YOY but down 3% sequentially.
We expect global technology M&A volume and value to remain at historically high levels for the remainder of 2014, especially given the strong first quarter. Values will likely cool down, at least a bit, from the level achieved in the last nine months. However, 1Q14’s 758 deals had the highest volume we’ve seen in the last six years, demonstrating the broad-based impact of the five megatrends that we’ve been observing for several years. We expect a plateau in quarterly volume for the rest of the year, right around that level, or only modest growth.
Additionally, our April 2014 Technology Capital Confidence Barometer (CCB), echoed these strong positive sentiments on the global economy, corporate earnings, credit availability and deal valuations.
According to our report, 61% of technology executives remain confident that the global economy is “improving,” with another 35% seeing the economy as “stable” and only 4% see it as “declining.” While confidence levels dipped to 61% from 68% of executives six months ago, it remains well above the 54% confidence rating of one year ago and the 21% indicator of October 2011.
Our report also indicates that 59% of technology executives expect modest deal volume growth in the next 12 months and that deal size is expected to rise. Twenty-six percent of technology executives intend to engage in larger deals (over $500 million), more than double the number a year ago, 44% expect to engage in deals in the $51 million-$500 million range and the most likely technology deal size is small (up to $50 million), according to 30% of executives.
Source: EY analysis of The 451 Group Research M&A KnowledgeBase, accessed 4 April 2014.
Note: all dollars are US$ unless otherwise indicated.