Deal activity in global technology sector grows lightly to $466 billion

13 March 2017 Consultancy.uk

M&A activity in the technology industry has grown slightly last year, from $459 billion the year previous to $466 billion. While corporate activity waned, private equity activity remained relatively strong, particularly in the Americas.The semiconductor sector was the most actively sought target in Q4 2016, while the largest buyers were non-tech companies, seeking, among others, to pick up innovation.

In EY’s latest Global Technology M&A report, titled ‘Digital disruption propels industry shifts — and record annual value’, the firm explores deal activity in the technology M&A sector over 2016, including focus on Q4 2016 across global regions.

Aggregate value of announced deals by deal size

The research found that Q4 of last year was relatively representative of the year as a whole and of the year previous. 75% of the deals in the sector surpassed $1 billion in value in Q4 2016, totalling $117 billion. Billion dollar deals were down on Q4 2015 however, when they totalled 81% of all deals, with total value of $189 billion. Total deal value across 2016 was slightly higher than that of 2015, even with disparity between the Q4 quarters, with total aggregate value hitting $466 billion from $459 billion.

According to Jeff Liu, EY Global Technology Industry Leader, Transaction Advisory Services, “The second-half slowdown in global technology M&A deal volume suggests tech companies are approaching a dealmaking plateau. But with digital disruption still in its infancy and the extraordinary growth of IoT-related deals, we don’t expect this dip in volume to translate into a long-term decline in dealmaking.”

Global technology transaction scorecard 2015 vs. 2016

Across the whole year, the research found that the number of corporate deals dipped slightly, down from 3,711 in 2015 to 3,413 last year. The corporate sector was by far the biggest player in the acquisition space, investing $376 billion, although this dipped 7% on the year previous. The average value of deals was up however, as targets became harder to find – jumping from $483 million to $533 million.

The PE segment saw considerably increased deal activity on last year, as the number of announced deals jumped 34%, from 285 to 383, while value jumped 61% more than $90 billion. The average value of disclosed deals also jumped, from $628 million to $819 million.

Americas transactions scorecard Q4 2016

Q4 2016 saw corporate deal activity slide year-on-year, with deal value falling by 52%, while the average value of deals saw a 35% decline. The number of deals announced was down slightly, by 7%. In the PE segment, total deal disclosed value grew 49%, to close to $10 billion, while the number of deals announced was up 63%, to 65 total. Year-on-year for both segments, however, deal value saw a 48% decline.

The firm notes that three areas were particularly active last year in the Americas. IoT volume increased 30% to 221 deals for the year and value tripled (+203%) to $103.4 billion; cybersecurity disclosed-deal value rose 48% to $39.8 billion in 2016; and big data analytics, volume rose 13% to 428 deals, but value fell 7% to $35.6 billion.

Asia-Pacific and Japan transactions scorecard

In the Asia-Pacific region and Japan, deal announcements saw a sharp year-on-year decline in Q4 2016, falling 27%, while deal value fell 19%, from $18 billion to $15 billion. Average value of deals with disclosed values rose however, up 25% to $329 million. In the PE segment, deal volumes were up three, to 8, while total value dropped to $5.3 billion. The PE market was very subdued in the final quarter of last year in the region.

EMEA transactions scorecard Q4 2016

The full year results for the EMEA region saw a minor (4%) decline in deals, while value fell 19% on the year previous to $57.6 billion. In Europe corporate deal activity in the final quarter of last year was down 20%, even while total deal value jumped 183% to $9.2 billion – largely from Siemens’s acquisition of Mentor Graphics Corporation for $4 billion and Cinven/Permira/Mid Europa’s acquisition of Grupa Allegro for $3 billion.

Simon Pearson TMT Corporate Finance Leader, United Kingdom and Ireland Region, remarks the that regions “EMEA tech and non-tech companies alike are using M&A to maintain a competitive edge in global markets, focusing on key areas such as security, big data analytics, semiconductor design and IoT.”

Global technology transactions value flow by sector

In terms of transaction by type, semiconductor companies were the main target in 2016, at 27% of total deals, followed by software/SaaS firms, at 26%. Internet and IT services came next, at 16% and 12% respectively. In Q4 this year, buyers were even more keen on the semiconductor segment, with 38% of total deals in the segment, followed by Software/SaaS and IT services.

On the buyer side, non-tech firms have been keen to get their hands on tech companies, representing the largest chunk of buyers at 23%. PE, Software/SaaS and Semiconductors follow, all on 19% of the total share. Q4 of last year saw particularly semiconductor companies active, followed by PE.

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