The total value of technology merger and acquisitions (M&A) fell 52 percent year-on-year, according to Ernst & Young’s Global Technology M&A Update: July-September 2012 report. The report also found technology M&A fell 15 percent in the third quarter compared to the second quarter in 2012.
Due to macroeconomic uncertainty, 2012 largest third quarter deal was the actually the smallest deal in over three years – since first quarter of 2009. According to the report, the first quarter of 2009 was the time period in which technology M&A hit its “bottom” following the economic downturn.
However, Ernst & Young said this doesn’t necessarily mean technology deal-makers took a break. The report found that in the third quarter of 2012, deal volume was up driving more small strategic deals. According to the report, Ernst & Young identified five long-term “megatrends” that are driving these strategic deals.
The five industries leading innovation in technology are:
- Data Center Performance
- Mobile Payments
- Social networking
- Big data analytics
- Health Care Information Technology (HIT)
According to the report, regardless of an uncertain economy, data center technology has continued to grow in order to meet the demands of cloud computing, smart mobility and big data analytics. In addition, there has been a dramatic growth in the value of deals involving payment technologies and HIT.
Also, although the value of social networking and patent deals declined in the second quarter of 2012, buyers continue to purchase technologies that add social functions to enterprise software and intellectual property, as stated in the Ernst & Young report.
In total, however, there were 752 deals in the third quarter of 2012 – up 2 percent year-on-year.
In a company press release Joe Steger, transaction advisory services leader at Ernst & Young, Global Technology Industry, says, “Once again, the macroeconomic environment is challenging technology M&A. But unlike after the global downturn that began in late 2007, when deal values and volume both fell hard and fast, volume continues to grow – at least a little.”
“This is a real testament to the spreading strength of the ‘social-mobile-cloud’ and big data analytics megatrends. These are major forces and they are still driving technology company transactions. So, we’ll continue to see many smaller strategic technology deals, and caution around executing large transformative deals until macroeconomic conditions and confidence improve. But the long-term outlook for global technology M&A remains strong,” Steger added.
Looking into the future, however, technology executives aren’t as confident as they once were when it concerns the global economy. According to Ernst & Young’s biannual Capital Confidence Barometer – Technology Industry survey, 45 percent of respondents (technology executives) expect M&A valuations to decline over the next year.
Nevertheless, Ernst & Young says there are a number of factors that could potentially help turnaround technology M&A including strong growth in the cloud/SaaS industry.
Steger concludes, “While most of the ingredients necessary for a deal recovery remain in place – plentiful cash reserves, adequate credit availability, and transformative technologies – one element remains elusive: economic confidence. Without it, the M&A market will continue to be constrained by conservatism. This is especially true for larger deals.”