PE Deal Making Soars While Corporate Activity Slides for Q213 Technology M&A

EY’s global technology update for the second quarter of 2013 shows a mixed picture, with private equity (PE) deal-making soaring while corporate deal-making continued a three-quarter-long slide, according to EY’s Global technology M&A update: April–June 2013.

 

At US$33.4 billion, aggregate value of all disclosed-value deals is essentially flat year-over-year (YOY) and down 8% sequentially from Q1 2013.

 

Deal volume in Q2 2013 fell to the lowest level since 2010 with 627 deals, down 14% YOY and 5% sequentially.

 

In contrast, PE volume increased for the second consecutive quarter, up 10% YOY and 24% sequentially. PE's aggregate value soared 208% YOY to US$13.9 billion from US$4.5 billion in Q2 2012.

 

Corporate aggregate value of disclosed value deals fell 32% YOY to US$19.5b and, at 570 deals, corporate volume hit its lowest quarterly level since 2009 (when every quarter had fewer deals).

 

Cross-border (CB) deal volume declined 24% YOY to 195 deals and deal value fell 63% YOY to US$6.4b.Yet the value of strategic technologies was on prominent display in Q2 2013, as innovation around the five megatrends (mobile-social-cloud, big data analytics and accelerated technology adaptation) drove most of the top 10 deals for the quarter.

 

The report also notes many small deals around three emerging categories of megatrend-enablers: application programming interfaces (APIs), “devops” and mobile back-end as a service (MBaaS).

 

“Given the deal-driving force of the five transformative technology megatrends of mobile-social-cloud, big data analytics and accelerated technology adaptation, it might seem surprising that global technology M&A levels of activity aren't higher," says Joe Steger, EY’s Global Technology Industry, Transaction Advisory Services Leader. "But, there are a set of counterbalancing forces holding down the expected levels of activity. These include macroeconomic and geopolitical uncertainty, unresolved regulatory, fiscal and tax issues and valuation gaps. Collectively, these forces may be causing M&A to reset to lower levels of activity across all industries. That said, I expect the strength of the five megatrends to prevail in technology, resulting in slow, steady M&A growth.”

 

Key trends and deal drivers
Innovation around strategic technologies drove many top 10 deals for the quarter, especially around mobile-social-cloud and big data analytics technologies. Also in Q2 2013 there was the highest-value deal targeting advertising and marketing technology since 2007, and information security returned as a top 10 target for the first time since Q4 2011.

 

Among the hundreds of small and non-disclosed value deals, EY saw a few megatrend-enabler categories emerging such as application programming interfaces (APIs), “devops” and mobile back-end as a service (MBaaS).

 

Meanwhile, some technology targets have been weakened by not keeping up with innovation from the five megatrends enabling activist shareholders to take positions in the stock; favorable credit availability at low interest rates; and the pursuit of value-creation opportunities through operational improvements that corporate buyers may not see or may ignore in favor of deals that focus more on strategic technology opportunities.

Looking ahead
Although big-ticket deals drove Q2 2013 aggregate value to match last year’s second quarter, a 5% sequential decline in global technology transaction volume suggests that corporate technology buyers may want to do more deals but caution may be keeping many on the sidelines.

 

EY predicts gradual growth for technology M&A volume and value for the rest of 2013 based on PE strength and that Q2 2013 volume is too low to sustain.

 

According to the report, technology may be running counter to the overall M&A trend for all industries which may be undergoing a fundamental reset to a lower level of long-term activity.

 

EY believes that continuous innovation around the five megatrends of smart mobility, cloud computing, social networking, big data analytics and accelerated technology adaptation is happening too fast for corporate buyers to sit still for too long.

 

“The strong overall deal value driven primarily by PE buyers was encouraging in the second quarter. I expect conditions such as low interest rates, lack of confidence among corporate buyers, the need for some technology companies to improve shareholder returns and PE firms’ ‘dry powder’ to foster ongoing PE deal strength,” says Steger.

Read more on
M&A

Suggested Articles

Some of you might have already been aware of the news that Questex—with the aim to focus on event business—will shut down permanently all media brands in Asia…

Some advice for transitioning into an advisory role

Global risks are intensifying but the collective will to tackle them appears to be lacking. Check out this report for areas of concern