Global technology M&A update: 4Q12 highlights

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Companies engage in fewer large, transformative deals in 2012 compared to 2011.

The aggregate value of technology mergers and acquisitions (M&A) declined 35% worldwide in 2012, to $114.1 billion from $175.7 billion in 2011. Deal value in 4Q 2012 was $29.4 billion, down 4% year over year (YOY) from $30.5 billion in 4Q 2011.

Nearly the entire full-year decline came from deals above $1 billion in dollar value: for example, the largest deal of 2012 would have placed fifth in 2011 and only two 2012 deals would have made it onto the 2011 top 10 list.

Companies were hesitant to engage in large, transformative technology deals because the uncertain macroeconomic environment increased many risks, particularly the risk of an incorrect valuation as equities markets fluctuate and buyers believe some company values remain high.

“Heading into early 2013, the short-term outlook suggests a soft couple of quarters but the long-term outlook for technology M&A remains strong, as both technology and non-technology industries have an ongoing need to adapt to disruptive technology innovation.”

Joe Steger, Global Technology Industry, Transaction Advisory Services Leader, at EY

Deal volume held steady, however, as companies continued to engage in smaller, more strategic deals driven by technology megatrends that are generating transformative innovation in technology and leading to technology-enabled innovation in other industries. 

These megatrends include smart mobility, cloud computing, social networking, big data analytics and accelerated adaptation, as technology companies rapidly adapt to the needs of specific industries and other industries rapidly adapt to the evolving possibilities that technology enables.

Deal drivers

  • Cloud computing / Software-as-a-Service (SaaS) deals dominate M&A landscape: Largely on the strength of SaaS growth, the cloud/SaaS megatrend “ran away” from the rest of the pack of deal-driving trends in 2012, growing to more than 15% of global technology M&A deal volume.
  • Non-technology companies buying technology outpaces other deal types: To help accelerate their adaptation to the innovation that technology is enabling in many industries, non-technology buyers increased technology-buying activity all year, ending with 10% of full-year aggregate value and 12% of volume.
  • Megatrends drive increasing share of deals: In addition to cloud/SaaS and big data analytics, smart mobility, social networking, advertising and marketing, security, mobile/e-payments and health care information technologies (HIT) all drove a larger number of deals in 2012 than in 2011, even as overall deal-making held steady.

Looking ahead: Mixed signals for technology M&A with possible recovery in late 2013

In 4Q12, technology M&A data gave mixed signals, suggesting that the market might be approaching a near-term bottom.

However, the report noted 22% YOY growth in mid-priced deals (between $100 million and $1 billion) in 4Q12, which suggests that the broad-based need for transactions that help companies accelerate their adaptation to transformative technology innovation has not changed.

What has changed is that macroeconomic uncertainty increased throughout 2012, driving up the valuation risk inherent in large transformative deals.

Overall, we expect a relatively stable volume of strategic deals in 2013 as compared with 2012, but with growth weighted more toward the second half of the year.

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