November 2016 M&A at a glance

Strong month positions 2016 for a run at all-time annual tech M&A value record

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The Internet of Things (IoT) and cross-border deals predominated in November as corporate technology buyers, private equity (PE) and non-tech buyers all posted relatively strong — if unspectacular — global technology M&A disclosed values.

But in a sign that the multiyear surge in tech M&A may be reaching a plateau, November volume slumped to the lowest level of the year. Similarly, divestiture deals continued to subside, falling to about 35 deals from 40 in October — on track for the lowest quarterly level of the year.

Value: At $37.9 billion, November’s aggregate disclosed value was up 11% year-over-year (YOY) and ranked as the fourth highest of 2016. But, because the highest three months were much higher, November was below average for the first 10 months of the year.

Nine deals topped $1 billion, up from four in October, but well below the pace in the second and third quarters of 2016 (with 28 and 32, respectively). The 2016 year-to-date (YTD) aggregate value of $444 billion lags behind the 2015 all-time value record by only $15.6 billion; December would have to be the lowest-value month of the year to miss that mark.

Volume: November was the fourth consecutive sub-300 deal month and the lowest of the year so far, with 254 deals. It was 25% below the average for the first six months of 2016 (340 deals per month). The YTD volume has fallen 7% behind the YTD 2015 figures (3,520 deals vs. 3,775). 

Tech buyers: Most November tech deals were in the sector, as companies sought to extend their portfolios by purchasing competitors and complementary businesses. However, the biggest-ticket deal ($8 billion) involved an IoT and connected car target, while other $1 billion+ deals targeted storage, security and e-commerce.

In all, tech buyers’ disclosed value was $25.3 billion, 10% more than their $23 billion monthly average for the first 10 months.

Non-tech buyers: Disclosed value bounced up to $7.3 billion from $1.2 billion in October, but remained well below the monthly average of $9.5 billion for the first 10 months. Meanwhile, the non-tech buyer volume dipped to a 2016 monthly low of 30 deals.

The largest deals targeted semiconductor design software, telecommunications infrastructure, remote control equipment for home automation and sensors for drones. At $102.6 billion YTD, the non-tech buyer value is nearly double the full year in 2015.

PE buyers: Continuing on course for a strong but less than record-setting fourth quarter, PE buyers posted 29 deals in November with an aggregate disclosed value of $5.3 billion. That brings PE to 59 deals and $14.9 billion in disclosed value so far for the fourth quarter, compared with its record set in 3Q16 with 100 deals representing $36.1 billion.

Top-value deals targeted cloud data centers, semiconductors, communications infrastructure and e-commerce. PE buyers will, however, establish a new annual value record in 2016 having now acquired $84.1 billion YTD, already 43% ahead of the prior record ($58.8 billion in 2013).

China: After skyrocketing in the first half of the year and peaking in June, Chinese technology M&A buyers continued a “second-half slowdown” of their own in November. They posted 10 deals and $2.9 billion in disclosed value.

But even the second-half slowdown disclosed value average of $4.6 billion per month (July through November) is 39% more than the 2015 monthly average. YTD, China’s volume is 59% more than it was in 2015 with a value of more than 143%.

Cross-border (CB): In November, $17.3 billion in disclosed value crossed borders, representing 46% of the month’s aggregate value. And despite November’s sudden rise in the US dollar, three of the four CB deals worth more than $1 billion targeted US companies, including a maker of automotive sound and connected car systems, as well as the semiconductor design software company and the cloud data center and co-location business already mentioned. In all, $14.5 billion in disclosed CB value targeted US companies — 84% of the total CB value for the month.

Not counting what’s to come in December, 4Q16 already marks the second-highest CB disclosed value ever, at $63.7 billion.

Deal drivers: Thanks mostly to one $8 billion deal, the value of deals targeting IoT and connected car technologies bested even cloud/SaaS values in November. IoT targets garnered $9.6 billion and connected cars drove to $8.2 billion, while cloud/SaaS deals posted $7 billion. Of note, IoT targets have amassed $101.3 billion so far in 2016, more than triple 2015’s YTD level and more than any other deal-driving trend we follow.

Besides IoT, security, mobility, and advertising and marketing are well ahead of 2015 in terms of driving YTD tech M&A disclosed value, while gaming also is ahead, but by a smaller margin. In terms of volume, only big data analytics and IoT remain far ahead of their 2015 YTD totals; cloud-driven deals are slightly ahead (4 deals from approximately 1,200).

“The second-half slowdown in tech M&A deal volume, combined with results from our October Capital Confidence Barometer survey, suggests tech companies are approaching a dealmaking plateau. But with digital technology disruption still in its infancy and the extraordinary growth of IoT-related deals, it’s likely to be a very high-altitude plateau, indeed.”

EY - Jeff LiuJeff Liu
EY Global Technology Sector Leader
Transactions Advisory Services

 

 

EY - October 2016 M&A 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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