Will 2012 produce a 'perfect storm' for tech M&A?
Despite a slower fourth quarter, US tech M&A increased by 41 per cent in 2011, with big-money deals leading the way. Now analysts are claiming that the year ahead could bring even more mergers and acquisitions due to a “perfect storm” of market conditions.
The recently published Global Technology M&A Update: October–December 2011 and Year in Review, by Ernst & Young, shows that tech M&A deals totalled some $167.7 billion last year. This is a significant rise against the $119 billion of deals carried out the year before.
Perhaps even more positive is the fact that so many of the deals were, individually, of high value. Indeed, Google’s buyout of Motorola Mobility Holdings for $11.8 billion topped the list as the most valuable, but other deals involving such industry giants as Hewlett Packard and Microsoft also helped to make it a remarkable year for major tech deals.
Deals between semiconductor businesses also drove the market in 2011, with five of the top ten deals in terms of value involving one semiconductor firm buying another.
So what’s in store for the year ahead? According to some industry insiders, 2012 will produce a “perfect storm” in which M&A activity can flourish. Bruce Mine, the CEO of Corum and the chairman of the upcoming Selling Up and Selling Out touring conference, stated, “2012 has a perfect storm of trends in disruptive technologies, tax changes, industry consolidation, new buyers and record cash reserves held by major technology companies, all of which will make it the best year since the dot com era for M&A in software, internet, IT and related technologies.”
Ernst & Young was also keen to point out the fact that the rise in new “disruptive technologies” has spawned a whole new era for the technology market, and particularly in terms of mergers and acquisitions. The report found that several “megatrends” in technology have driven the rise in M&A. These trends include cloud computing, big data analytics, social networking and smart mobility. Ernst & Young’s leader of Global Technology Industry Transaction Advisory Services, Joe Steger, said, “The disruptive megatrends of ‘social-mobile-cloud’ and ‘big data’ analytics have helped fuel a significant rise in global technology M&A activity since 2009, despite a slight pullback due to macroeconomic pressures in late 2011.”
The “pullback” that Mr Steger refers to came in the final quarter of 2011 when M&A activity fell by 43 per cent in value terms compared with the third quarter. This cooling down of activity at the end of last year has largely been attributed to the general macro-economic challenges facing all industries and some analysts feel that a similar pattern could occur in 2012.
However, Ernst & Young added that the emergence of disruptive technologies, and particularly the increasing market for cloud computing and big data analytics, and the information security issues that come with this, will help to boost activity this year.