Global technology M&A report: 2Q16 final look

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Digital transformations drive blockbuster quarter

In the second quarter of 2016, global technology M&A saw incumbent tech companies pursue multiple transformational big-ticket deals. At the same time, private equity (PE) buyers set an all-time value record, non-tech buyers nearly doubled their value year-over-year (YOY) and Chinese buyers already surpassed their full-year 2015 value level.

In all, 2Q16 was the third-highest-value quarter ever, with more deals at or above US$1 billion than in any previous quarter.

Highlights

Volume: At 1,039 deals, 2Q16 volume rose 4% sequentially and 2% YOY. Year to date (YTD), 2016 has seen 2,041 deals, 2% ahead of 2015’s post-dotcom-record pace (only the year 2000 had more deals).

Value: Though both quarters round to the same US$127.2 billion in disclosed value, 2Q16 bested 2Q15 by US$55 million, only 4Q15 (US$189.8 billion) and 1Q00 (US$228.4 billion) posted higher values.

Big-ticket deals: With 28 deals at or above US$1 billion, 2Q16 blew past the prior record of 20 such deals (set in 4Q15). Three deals rose above US$5 billion, including one megadeal over US$25 billion.

PE buyers: US$25.7 billion in disclosed-value tech deals by PE buyers made 2Q16 the highest-value PE quarter on record — by only US$85 million. And with 95 deals, it’s the second-highest-volume PE quarter, falling just shy of 3Q10 (99 deals).

Blur: Non-tech-buyer volume rose 28% YOY to 159 deals, and aggregate value jumped 95% over 2Q15 to US$21.3 billion. YTD, 2016 now leads 2015’s non-tech-buyer pace by 27% in volume (306 deals vs. 241 in 2015) and 25% in value (US$38 billion vs. US$30.5 billion).

China: Chinese buyers recorded their highest-value tech quarter ever with US$32.3 billion in disclosed-value deals. It brought their YTD total to US$47.4 billion, which already is 19% ahead of their entire 2015 value of US$39.9 billion.

Hidden gems: Large incumbent tech companies that continue to scale down their focus drove divestitures to slightly more than 175 deals in 2Q16, the highest volume level we’ve seen yet. Disclosed value remained roughly equal to 1Q16, at US$16.7 billion. Three deals rose above US$1 billion, including two with Chinese buyers.

Disruptive digital technologies continue to drive M&A volume growth

The number of deals driven by Internet of Things (IoT) and big data analytics technologies increased at a faster pace than all others for both 2Q16 and YTD, well above the single-digit pace of overall global volume increases.

IoT volume rose 28% YOY for 2Q16 and 26% YTD; big data analytics volume rose 13% for the quarter and 29% YTD.

In all, 6 of the 10 deal-driving technologies saw 2Q16 volume increases, the other four being cloud/SaaS, health care information technology (HIT), gaming, and payments and financial services.

In terms of aggregate disclosed value, only big data analytics, and advertising and marketing declined YOY in 2Q16.

YTD, there were five drivers with significant value growth over 2015:

  • Big data analytics
  • HIT
  • Security
  • Smart mobility
  • Gaming

Connected cars, which we charted for the first time last quarter, had only eight deals but with high average value.

 

A multitude of disruptive digital technology deals drives near-record volume and value

 

Large incumbent tech companies pursuing transformation drove the biggest disclosed-value deals of 2Q16, but the quarter encompassed a diverse array of disruptive technology targets — and most of those appeared among the 28 big-ticket deals.

One megadeal above US$25 billion had a core focus on social networking but also embraced important big data, advertising and marketing, and video learning technologies.

Other targets included mobile gaming, security, online video, semiconductor packaging, wireless networking and multiple internet e-commerce businesses. YTD, 2016 disclosed value is US$193.9 billion, only 5% behind 2015’s all-time record pace (US$204.3 billion at the half way mark for the year).

PE buyers from the US and China captured seven of nine PE deals above US$1 billion.

China targets Europe in 2Q16 cross-border deals

China’s cross-border (CB) tech dealmakers set their sights on European targets in 2Q16. In all, China acquired 57% (US$21.3 billion) of 2Q16’s total CB disclosed value of US$37.4 billion — the second-highest CB value total on record.

It was an increase of 68% sequentially but a 14% decline YOY from the record total of US$43.6 billion set in 2Q15. Eighty-one percent (US$17.3 billion) of China’s CB value came from European targets, including three big-ticket deals valued at US$8.6 billion, US$4.7 billion and US$2.8 billion.

China buyers acquired 66% of the total US$26 billion European value sold across borders, and other European buyers acquired nearly all the rest (US$7.4 billion, or 28%).

The US was unusually inactive in CB deals, with low buyer and seller totals. Of the US$5.3 billion in disclosed value sold by US targets, China acquired 54%, most of which came in one US$2.5 billion deal.

 

Outlook | Ongoing M&A strength continues due to digital disruption

 

Digital transformation from cloud, mobile, social and big data analytics technologies motivated high-value dealmaking in 2Q16, helping 2016 to nearly catch up with 2015’s record pace — despite equity market volatility that has often derailed dealmaking in prior years.

Because technology is an industry in major transformation, we expect 2016 technology M&A to continue at this near-record pace for the foreseeable future, driven by the disruptive digital technologies that the industry is itself bringing to market.

Companies are turning to M&A to accelerate their transformations and to continue growing and building end-to-end solutions. To help assess your dealmaking opportunities, we suggest that technology executives test their organizations against these questions:

  • Are we positioned to offer customers true solutions, or even answers, as opposed to just a point offering in the overall technology stack?
  • Is there a “hidden gem” among our business units and other departments with the potential to drive greater value?
  • Has disruptive technology placed our organization “in the crosshairs” of some upstart companies or of activist investors?
  • Are we doing all we can to provide comprehensive security in our offerings?

“Near-record volume and value levels in the second quarter show that technology M&A continues to be the most important tool of choice to help corporate strategy keep pace with unprecedented disruption coming from rapidly advancing digital technologies.”

Jeff Liu, EY

Jeff Liu
EY Global Technology Industry Leader
Transaction Advisory Services

 

Note: all dollar references are in US dollars unless otherwise indicated.

 

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