Technology M&A report: October 2016 at a glance

Global technology M&A takes a “breather” — except for one semiconductor megadeal.

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Though you couldn’t tell by looking at the top-line numbers, non-tech buyers and corporate technology dealmakers appeared to take a “breather” in October, perhaps in response to uncertainty leading up to the US presidential election.

Aside from one $39.2 billion semiconductor megadeal driven by an envisioned future of explosive growth in Internet of Things (IoT) devices — particularly for connected cars — only private equity (PE) buyers posted strong aggregate value numbers in October 2016. We noted approximately 40 divestiture deals in October, among the lowest-volume months of the year.

Value: At $53 billion, October was the third-highest month of the year for aggregate value. But holding aside the one megadeal would bring that total down to $13.8 billion — which would be the lowest monthly total since January 2015.

Only four deals reached $1 billion or more, the lowest number since January 2016. Year-to-date (YTD), 2016 aggregate value is ahead of 2015, but by less than 1% ($402.4 billion vs. $399.5 billion). Tech dealmakers must post $57.2 billion in November and December to match 2015.

Volume: October volume continued at the same slower pace that began in August. At 294 deals, October was the third consecutive sub-300-deal month — and only the third of the year. Its volume was 14% below the average for the first six months of 2016 (340 deals per month).

Tech buyers: October saw mostly in-sector deals among technology companies, as they appeared to focus on consolidation and broadening end-to-end solutions by acquiring competitors. Tech buyers’ disclosed value was $42.7 billion, but without the one megadeal would be only $3.5 billion.

Non-tech buyers: Disclosed value of $1.2 billion in October was non-tech buyers’ lowest monthly total of 2016. Likewise, non-tech-buyer volume of 37 deals was their lowest monthly volume of the year.

IoT, big data analytics, and payments and financial services technologies were among non-tech buyers’ most popular October targets. YTD, non-tech’s $94.4 billion disclosed value is 85% higher than YTD 2015 and 76% higher than full-year 2015.

PE buyers: After setting new quarterly volume and aggregate value records last quarter, PE volume (27 deals) and value ($9.1 billion) remained strong in October, though below a record-setting pace. PE buyers acquired all October deals above $1 billion except for the one megadeal.

PE firms have become quick to buy tech companies this year when opportunities appear during times of equity market volatility. At $78.3 billion YTD, 2016 PE disclosed value is already 40% ahead of the $55.9 billion posted for all of 2015 and 33% ahead of 2013, PE’s previous all-time record year ($58.8 billion).

China: Chinese buyer volume of nine deals in October tied with August for lowest month of the year so far, and disclosed value of $4.5 billion also continued a second-half slump. Chinese tech dealmaking skyrocketed in the first half, peaking in June.

China’s monthly disclosed value averaged $7.9 billion in the first six months, but only $4.8 billion (-39%) in the four months since. YTD, China volume is 72% higher than in 2015 and value is 150% higher.

Cross-border (CB): The $39.2 billion semiconductor megadeal, with a US buyer and Netherlands seller, dominated the total October CB value of $45.4 billion. It was the second megadeal of the four so far this year to cross borders.

Two other CB deals rose above $1 billion: a UK PE firm made a deal for an internet e-commerce company in Poland, and a US-based PE firm bid for an IT services company based in Hong Kong.

Deal drivers: Semiconductor consolidation and IoT dominated October deal-value drivers because of the megadeal, which emphasized those long-term trends. Semiconductor consolidation has been building for several years; 2016 is the second year of very-high-value deals, driven partly by IoT.

YTD, the disclosed value of semiconductor deals reached $120 billion in October, 16% higher than the $103.6 billion posted for full-year 2015. October brought YTD IoT-targeted disclosed value to $90.9 billion, almost triple the $32.8 billion posted for YTD 2015.

In line with overall slowing volume in the second half, all the disruptive digital technology deal-driving trends we follow posted lower deal volume year-over-year in October except cybersecurity, whose 27 deals matched October 2015. Big data analytics, cloud/SaaS, IoT and gaming are still ahead of YTD 2015 in terms of volume.

“Our October Capital Confidence Barometer survey suggests that technology dealmaking is poised for a change — but it is sending mixed messages about direction. Tech executives are less optimistic about M&A growth than last year but have many more deals in their pipelines. It will be important to see where dealmaking heads as the dust settles from the US presidential election.”

EY - Jeff LiuJeff Liu
EY Global Technology Industry Leader
Transaction 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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