Technology M&A Forges Ahead in 2011
The market for technology mergers and acquisitions (M&A) is being increasingly driven by the rapidly evolving sectors of cloud computing, software as a service (SaaS), social networking, mobile communications and information security.
While the value of technology deals has shown a dramatic rise in the first quarter of 2011 (up 124% on the same period last year, according to Ernst & Young’s Global Technology M&A Update), the estimated $27 billion worth of technology deals carried out in the quarter were largely made up of a diverse portfolio of smaller, more strategically focused acquisitions. This increasing number of smaller deals has not appeared as a surprise to many in the industry: it has been widely expected that the inherently fluid and dynamic nature of the emerging technologies would cause something of a seismic shift in both the pace and nature of M&A activity.
Technology deals have been influenced by the rapid adoption and integration of increasingly hi-tech processes not just into office life, but also into consumer mobile and home entertainment markets. The intangible commodity that is information makes up a growing part of the value of many technology products and services — prompting the rise in cloud computing and SaaS deals.
The shift toward multiple smaller acquisitions allows for the buyers to better cope with change, allowing them to weave together a hybrid business that can meet its strategic objectives. Prime examples include the purchase of multiple smaller social networking companies by larger internet properties, the scramble to buy companies with strategic video technologies and mobile device manufacturers expanding via acquisition into the content arena. The rise of 'deal-a-day' e-commerce companies is also resulting in regional consolidations among smaller technology firms and expansion into foreign markets by larger players.
The overall trend is one of rising competitiveness and expansion of strategies, whilst maintaining a strong focus on current and evolving business ideas.
The 'daily deal', however, prompts further focus on another 'double D': due diligence. In the age of rapid-fire buying and selling of technology companies, this could hardly be more important, with crucial attention necessary to scrupulous deal valuation, structuring and integration.
While 'cloud computing' is a term that may still stump the layperson, its definition and value are crystal clear to the technology M&A world. The dozens of cloud company deals carried out in the first quarter of 2011 gave it the highest dollar value of all of the technology sectors. This was spurred by the acquisition of service companies with substantial data centers by telephone and cable companies.
The growth of the global marketplace has not bypassed technology M&A activity either, and it is imperative that companies do not perceive international borders as impediments to business. Not that they have seemed to do so far: the surge in cross-border technology deals seen in 2010 has continued in to this year, with more than a third of all of the deals — some 34 per cent — being carried out across an international boundary.
The inertia of the sector is not being held back by a lack of funding for M&A spending: the sector’s top 25 companies had collective cash and investments of $544 billion by the end of the first quarter of 2011 — an 18 per cent year-on-year rise from the 2010 figure.
The momentum that has been propelling global technology M&A indicates the likelihood of a strong 2011, continuing the quarterly sequential increases in deal numbers that first began in 2009. This is only made more certain with global technology's increasing influence in the development of the worldwide economy as a whole — with waves of new innovation on the horizon for social networks and smart mobility — and the now indispensable value of information technology as a part of virtually all products and services.