August 2016 M&A at a glance

“Blur” heightens as private equity, non-tech buyers dominate tech M&A

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For the second consecutive month, non-tech buyers acquired more global technology M&A disclosed deal value in August than did tech companies themselves. Meanwhile, another strong month for private equity (PE) buyers pushed 3Q16 to a new quarterly value record for PE — with another month still to go.

Digital technology transformations continued driving deals for tech and non-tech companies alike. August’s big-ticket deals primarily focused on cloud/SaaS technologies (including hosted services), e-commerce, cybersecurity and Internet of Things (IoT) technologies.

Divestitures declined in line with a general summer slowdown in deal volume, but buyers continued to seek hidden gems within incumbent enterprises’ product lines and business units.

Value: After climbing sequentially in every month of 2016, aggregate disclosed value fell 72% to $26.4 billion in August from $94.7 billion in July. To put that drop in perspective, though, July’s total was the second-highest of any month in the 16 years since the dotcom boom.

Year-to-date (YTD), 2016 aggregate value is 24% ahead of 2015 ($313 billion vs. $252.4 billion). Eight deals reached or exceeded $1 billion.

Volume: August’s total of 272 deals was down from 315 in July and 20% below the average for the first six months of 2016 (340 deals per month). After finishing the first half of the year 46 deals ahead of 2015, a summer slowdown in deal volume has resulted in a 93-deal deficit YTD (2,628 deals vs. 2,721).

Tech buyers: In August, tech buyers continued acquiring portfolio-expanding technologies and building end-to-end customer solutions, particularly in software/SaaS, IT services, and computers, peripherals and electronics (CPE). Tech buyers acquired 97, or 80%, of the month’s 122 deals with software targets.

Overall, tech buyers’ disclosed value was only $7.6 billion.

Non-tech buyers: At $7.7 billion in August disclosed value, non-tech buyers posted their second consecutive month of higher value than tech companies — though by a much smaller amount than in July ($43.8 billion for non-tech vs. $34.1 billion for tech buyers). Top deals by dollar value included retailers acquiring e-commerce technologies and telecommunications companies seeking cloud and managed services providers.

YTD, non-tech’s $89.5 billion disclosed value is 92% higher than YTD 2015 and 67% higher than full-year 2015.

PE buyers: August’s $11.2 billion in PE disclosed tech M&A value brings the 3Q16 total so far to $28 billion, already the largest quarterly PE tech total on record. PE buyers acquired three of the top eight deals valued at more than $1 billion. Given the continued high level of capital inflows to tech-targeted PE funds, and equity market volatility causing sudden valuation fluctuations, PE firms have become quick to buy when opportunities appear. At $59.2 billion YTD, 2016 PE value is now 6% ahead of the $55.9 billion posted for all of 2015.

China: Chinese buyer activity fell for the second month, after peaking in June. August volume (8 deals) and value ($2.4 billion) were the lowest since January. Still, the “slowdown” is relative: China’s YTD volume of 112 deals is 84% higher than 61 deals in YTD 2015 and China’s YTD disclosed value of $57.7 billion is four times the $14.4 billion posted in YTD 2015.

Cross-border (CB): US technology targets stepped back into the international spotlight. Of August’s 102 CB deals totaling $7.5 billion in disclosed deal value, 25 deals and $5.8 billion (77%) targeted US companies.

Two deals rose above $1 billion, both with European buyers and US sellers. They targeted SaaS-based health care analytics and language translation technology services.

Deal drivers: Deals targeting hosted services, customer service tools and SaaS business applications made cloud/SaaS technologies a major driver of tech M&A value in August. Cloud/SaaS was a factor in 87 deals, with disclosed value of $10 billion (38% of total August value) and followed by big data analytics at $4.3 billion (16%).

Cloud/SaaS, like most of the disruptive digital technology deal-driving trends we follow, lagged YTD 2015 in volume as of the end of August. The exceptions pacing ahead of last year’s volume were big data analytics, IoT and gaming.

However, most are pacing ahead of YTD 2015 in disclosed value, including cloud/SaaS, mobility, cybersecurity, IoT, health care IT (HIT), gaming, and advertising and marketing technologies.

Note: All dollar references are in US dollars, unless otherwise stated.

“Tech-targeted private equity funds have seen strong capital inflows and are now strategically seizing opportunities as valuations fluctuate in volatile public markets. Look for continued strength from all buyers — incumbent tech, non-tech and PE — for the rest of the year.”

EY - Jeff LiuJeff Liu
EY Global Technology Industry Leader
Transaction Advisory Services

 

 

EY infographic - August 2016 at a glance

  • Our report methodology
    • Our monthly at a glance report is based on EY’s analysis of The 451 Group M&A KnowledgeBase data. All data in this report is subject to final verification at the end of the quarter. Deal activity and valuations may fluctuate slightly based on the date the database is accessed.
    • Technology company M&A data was pulled from The 451 Group M&A KnowledgeBase based on the database’s own classification taxonomy and then deals were aligned to the following sectors: communications equipment (CE); computers, peripherals and equipment (CPE); semiconductors, software/SaaS, IT services and internet companies. Alignment was based on the sector of the target company.
    • The data includes M&A transactions between two technology companies as well as non-technology companies acquiring technology companies.
    • Joint ventures were not included.
    • Equity investments that involved less than a 50% stake were not included in the data.
    • PE M&A activity includes both full and partial stake transactions in excess of 50% and was analyzed based on acquisitions by firms classified as private equity, sovereign wealth funds, investment holding companies, alternative investment management groups, certain commercial banks, investment banks, venture capital and other similar entities.
    • Unsolicited technology deal values were not included in the data set, unless the proposed bid was accepted and the deal closed based on data available at the time of analysis.
    • All dollar references are in US dollars, unless otherwise indicated.
    • In this report, disclosed deal values may vary from other published values because The 451 Group database methodology automatically subtracts cash acquired, net of debt, from enterprise value. Additionally, announced deal values are often subject to change at the time of close, due to subsequent revisions to the terms of the deal and/or changing stock valuations to the extent stock was used as a deal consideration.
    • “Total value” refers to the aggregate value of deals with disclosed values for the period under discussion.

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