The aggregate value of technology mergers and acquisitions (M&A) declined 35% worldwide in 2012, to US$114.1 billion from $175.7 billion in 2011, according to Ernst & Young’s Global technology M&A update: October-December 2012 and year in review.
Deal value in 4Q 2012 was $29.4 billion, down 4% year over year (YOY) from $30.5 billion in 4Q 2011.
Nearly the entire full-year decline came from deals above $1 billion in value. For example, the largest deal of 2012 would have placed fifth in 2011 and only two 2012 deals would have made it onto the 2011 top 10 list.
The report highlights that companies were hesitant to engage in large, transformative, technology deals because the uncertain macroeconomic environment increased many risks, particularly the risk of an incorrect valuation as equities markets fluctuate and buyers believe many company values remain high.
Deal volume held steady in 2012, however, as companies continued to engage in smaller, more strategic deals driven by technology megatrends that are generating transformative innovation in technology and leading to technology-enabled innovation in other industries.
These megatrends include smart mobility, cloud computing, social networking, big data analytics and accelerated adaptation. These allow technology companies to rapidly adapt to the needs of specific industries, while other industries rapidly adapt to the evolving possibilities that technology enables.
Both corporate and private equity (PE) deal-making declined. The aggregate disclosed value of PE deals declined by nearly half (down 47%), to $18.5b in 2012 from $34.8b in 2011.
Aggregate value of corporate deals declined 32% to $95.6b in 2012 from $140.9b in 2011. The average value of deals that had disclosed values was $188m, down 14% from $218m in 2011.
“The macroeconomic pressures that returned in late 2011 held down global technology M&A activity in 2012," says Joe Steger, Global Technology Industry, Transaction Advisory Services Leader, at Ernst & Young. "But, that pressure also helped clarify what’s important. We saw growth in the strength of transformative megatrends — social-mobile-cloud, big data analytics and accelerated adaptation — while the really big-ticket deals pulled back."
Heading into early 2013, the short-term outlook suggests a soft couple of quarters but the long-term outlook
for technology M&A remains strong, as both technology and non-technology industries have an ongoing need to adapt to disruptive technology innovation.
Largely on the strength of SaaS growth, the cloud/SaaS megatrend “ran away” from the rest of the pack of deal-driving trends in 2012, growing to more than 15% of global technology M&A deal volume.
Cloud/SaaS deals ranged from supply chain management, marketing and retail SaaS to cloud-oriented networking gear. Big data analytics deal volume saw similar growth, but from a smaller base.
Non-technology companies buying technology outpaces other deal types: To help accelerate their adaptation to the innovation that technology is enabling in many industries, non-technology buyers increased technology-buying activity all year, ending with 10% of full-year aggregate value and 12% of volume.
Megatrends drive increasing share of deals: In addition to cloud/SaaS and big data analytics, smart mobility, social networking, advertising and marketing, security, mobile/e-payments and health care information technologies (HIT) all drove a larger number of deals in 2012 than in 2011, even as overall deal-making held steady. Thus, their footprint in the global technology M&A landscape increased.
Cross-border deals decline
Cross-border deal volume declined for the first time in three years, to 970 deals in 2012 from 999 deals in
2011 (down 3%). The full-year 2012 value of cross-border deals fell 32% to $47b from $68.9b in 2011.
Because that decline was less than the overall 35% drop, cross-border aggregate value rose to 41% of overall aggregate value from 39% in 2011. But cross-border deal-making followed the same pattern we saw in 2011– it climbed in the first half of the year and fell in the second half. In 4Q4 2012, cross-border value fell to US$8b, or 27% of quarterly aggregate value.
The Americas continued as the major trendsetter in social-mobile-cloud and big data analytics deals in 2012, acquiring 92% of full year global volume and disclosed value. In Asia-Pacific and Japan, online and mobile video and video games were the significant value drivers for technology M &A during 2012. In Europe, the Middle East and Africa (EMEA), cloud/SaaS, smart mobility and social networking megatrends propelled much of the M&A buying in 2012.
In 4Q12, technology M &A data gave mixed signals, suggesting that the market might be approaching a near-term bottom. However, the report noted 22% YOY growth in mid-priced deals (between US$100m and US$1b) in 4Q12, which suggests that the broad-based need for transactions that help companies accelerate their adaptation to transformative technology innovation has not changed.
What has changed is that macroeconomic uncertainty increased throughout 2012 at the same time that many valuations increased. This was demonstrated by the 16% increase in the NASDAQ, driving up the valuation risk inherent in large transformative deals.
“We expect the first quarter of 2013 will be seasonally down. Overall, we expect a relatively stable volume of strategic deals in 2013 as compared with 2012, but with growth weighted more toward the second half of the year,” concludes Steger.