February 2017 M&A at a glance
Deal value rises sequentially in divestiture, outsourcing and cross-border activity.
Divestitures and deals for outsourcing and cross-border (CB) targets led February to another solid but lower month for global technology M&A year-over-year (YOY). Private equity (PE) firms captured an unusually high percentage of the month’s dollar value, and already have surpassed the total value they posted in last year’s first quarter.
Payments and financial services technology targets had a second consecutive strong month; big data analytics, security and Internet of Things (IoT) technologies also were significant deal targets.
Value: February’s $19.1 billion total for technology M&A disclosed-value deals represented a 4% increase from January, but (like January) was well below last year. February value was down 17% YOY. Only three deals topped $1 billion, compared with five in January, but they were worth almost as much. February’s three summed to $9.5 billion, only $500 million shy of January’s five-deal total of $10 billion.
Volume: February’s 252 deals fell 26% sequentially and 19% YOY. In the last two years, December was the only month that posted fewer deals (in both 2015 and 2016).
Tech buyers: While many tech buyers’ large January deals targeted data troves that could feed analytics, February’s two largest were divestitures. In one, a telecommunications equipment provider acquired a wireless networking systems business. In the other, a distributor of engineering and visualization systems acquired computer-aided design software for simulation and modeling. In all, tech buyers captured only $8.4 billion (or 44%) of the February tech M&A value, with no deals achieving $1 billion or more.
PE buyers: At $7.4 billion in aggregate value, PE buyers had 39% of February’s disclosed value (compared with a 19% average for all of 2016), including the top two deals of the month (both targeting information technology services outsourcers). Despite a slowdown in deal volume so far in 2017 compared with last year, PE buyers are slightly ahead of their 2016 year-to-date (YTD) pace (66 deals to 61, respectively). With $9.4 billion in value for the first two months, PE buyers already eclipsed their total 1Q16 value of $7.5 billion.
Non-tech buyers: Despite a steep decline in deal volume since January, non-tech buyers posted only slightly lower value, which rounded to the same $3.4 billion. The 32 February deals were 41% lower than January, and make for 86 deals YTD, 11% less than last year. From a value perspective, YTD 2017’s $6.8 billion is 55% lower than YTD 2016 ($15 billion). The largest non-tech-buyer deal involved a satellite manufacturer acquiring a provider of satellite imaging data to government agencies and commercial businesses.
Cross-border (CB): Despite a sudden decline by China’s CB dealmakers, CB deal value nearly tripled to $10.2 billion (53% of February value) from $3.6 billion in January. YTD, that puts CB deals slightly ahead in value compared with 2016 ($13.7 billion to $13.4 billion, respectively) and slightly behind in volume (224 deals to 234, respectively). Three of the month’s top five deals, including two of three worth more than $1 billion, were CB deals. One way or another, US companies were involved in 92% of the CB deals measured by value, acquiring $5.8 billion while targeting $3.7 billion.
China: After starting 2017 with the strongest January in three years, China’s dealmakers subsided in February. A total of eight deals and $456 million in aggregate disclosed value represented the country’s lowest totals since September 2015 (two deals worth $455 million). China’s CB deal value fell to $189 million from $1.9 billion in January, and to a 2016 average of $3.6 billion per month.
Hidden gems: Divestitures accounted for $7.8 billion (41%) of February’s disclosed value, including the largest deal of the month and three of the top five. While a multiyear rise in divestiture activity peaked in mid-2016 and declined through the end of last year, tech divestitures appear to be gaining momentum again. Deal value of $9.5 billion so far in 1Q17 is closing in on 4Q16’s $10.7 billion. And the volume of 88 deals is on pace to surpass the 105 deals seen in 4Q16.
Artificial intelligence (AI): Among the recurring themes we’ve noted in the growing volume of deals targeting AI and machine-learning technology is cyber intrusion-detection systems that “teach” themselves how to improve in that function. One such deal in February yielded the first AI deal of the year, with a disclosed value of $105 million. Though these deals are still small, the buyer list includes a large proportion of highly recognizable names — of both tech and non-tech varieties. February’s 10 AI deals included two by non-tech buyers: a large, multinational car company planning fully autonomous vehicles by 2021 and a large multinational media company. Advertising, marketing and automated content creation (and meaning extraction) are other notable substreams of AI technology targets.
Deal drivers: Despite declining overall volume, deals targeting big data analytics, IoT, and payment and financial services technologies all increased in February YOY, both for the month and for YTD. For big data and IoT, this continues the trend of accelerating deal volume growth. But payment and financial services targets could be rebounding after 2016 declines, in both volume and value. All other deal drivers declined in volume, in approximate alignment with the overall February volume decline.
- 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.