Global technology M&A update:

Q1 2013 highlights

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The aggregate disclosed value of all deals in the technology industry grew 58% year-over-year (YOY), according to our research on mergers and acquisitions during the first quarter of 2013. However, deal volume fell 12% YOY to 661 deals. Aggregate disclosed value would have fallen by 48% if not for a single announced technology transaction valued at US$24.4b. (Silver Lake Partners and Dell Inc. as announced on Feb. 5, 2013.)*

However, even that large deal reflected the challenges of transforming a strong, well-established company to align with five disruptive innovation “megatrends”: smart mobility, cloud computing, social networking, big data analytics and accelerated adaptation.

We found that these megatrends influenced the microcosm of global technology M&A activity in Q113, as companies competed for market share and key technologies.

“Macroeconomic pressures continued to hold down global technology M&A activity in Q113. We see gradual improvement in macroeconomic uncertainty and a near-term narrowing of valuation gaps as positive signs. However, there is still a lack of confidence around doing large deals in the current economic conditions.”
Joe Steger, Global Technology Industry, Transaction Advisory Services Leader, EY

Key highlights:

  • Aggregate value of all disclosed-value deals grew 58% year-over-year to $36.4 billion — but fell 48% after excluding the Dell deal.
  • Deal volume fell 12% YOY and 5% sequentially to 661 deals.
  • Private equity (PE) deal value soared 572% YOY to $25.6 billion, but 95% of it came in that same one deal. PE volume rebounded 31% sequentially but fell 13% YOY.
  • Aggregate value of corporate deals fell 44% YOY and 55% sequentially to $10.8 billion.
  • Cross-border (CB) deal value plunged 71% YOY and 60% sequentially to $3.2 billion and 9% of all aggregate value. CB volume declined 8% YOY and 5% sequentially.

Deal drivers:

  • The power of the smart mobility megatrend was evident. Its impact on PC sales helped drive the deal to take Dell Inc. private — the second largest-ever announced technology deal by dollar value.
  • Many deals involved technologies to help network operators manage growing mobile traffic volumes more efficiently.
  • Reflecting events in the US — ongoing health care reform and a possible turning point in the legalization of online gaming — we saw many deals for both technologies.
  • Social networking, software as a service (SaaS) and big data analytics continued to be major elements driving dozens of deals.
  • Distressed and non-core asset sales continued.

Looking ahead

Gradually improving macroeconomic conditions, improved confidence and increased stock market valuations all point toward a steady, gradual increase in technology M&A activity over the next several quarters.

While macroeconomic uncertainty will continue for the foreseeable future, there are signs of gradual improvement. Strong stock performance so far in 2013 indicates confidence in economic improvement.

An overwhelming majority of technology M&A growth will continue to be captured by technology products and services related to the five transformative technology megatrends (smart mobility, cloud/SaaS, social networking, big data analytics and accelerated adaptation).

Technology and non-technology companies are being driven to buy companies in these megatrends to help transform themselves to take advantage of growth opportunities. M&A growth in legacy products and services is virtually non-existent or negative.

*Source: Silver Lakes Partners/Michael Dell announced intent to acquire Dell Inc. Deal pending. Ernst & Young analysis of The 451 Group Research M&A Knowledgebase, accessed 5 April 2013